Numerous Saudi Arabian companies, including Nama Chemicals, Saudi Ceramic, Qassim Cement, Saudi Aramco Base Oil Company, and Rabigh Refining and Petrochemical, have expressed concerns about potential dampened earnings in 2024. The cause for this apprehension is the announcement made by the state energy group, Saudi Aramco, indicating a substantial increase in feedstock and fuel prices.

According to regulatory filings made by these companies, Saudi Aramco notified them on Wednesday of a sharp rise in retail diesel prices, effective from January 1, 2024. The retail diesel price is set to surge by 53% to 1.15 riyals ($0.3067) per liter. While still comparatively lower than U.S. prices, this marks the third increase since 2016, presenting a considerable cost escalation for the affected companies.

Although the exact impact on natural gas and other fuel prices remains unspecified, the companies anticipate feeling the effects in the first quarter of the year. In response, many firms are actively exploring strategies to enhance efficiency and offset the rising production costs. Saudi Aramco has yet to respond to requests for comments on the matter.

The price hikes are a result of domestic fuel price reforms initiated by the Saudi Arabian government in 2016, in response to lower oil prices. The reforms aim to gradually eliminate energy subsidies and have previously led to increases in petrol, diesel, and electricity prices.

Yousef Husseini, director at EFG Hermes’ equity research division, commented on the situation, stating, “While the market is taking the news negatively, investors were aware of a potential increase given how low prices were.” He added that the inevitability of the price hike was recognized, but the magnitude and timing were unclear until now.

Companies such as Middle East Company for Manufacturing and Producing Paper and Saudi Industrial Investment Group anticipate varying degrees of impact on their production costs due to the fuel price hike. The Middle East Company for Manufacturing and Producing Paper expects an approximately 3% increase in total annual sales costs.

Speculation surrounds the decision to raise prices, with Husseini suggesting that rising costs associated with the development of the Jafurah gas field may have influenced Aramco’s decision. Jafurah, the kingdom’s largest unconventional non-oil associated gas field, is estimated to require substantial investments and is poised to be a significant shale gas development outside the U.S.