Business

Kenyans stare at high fuel prices through December

Friday, December 8th, 2023 06:20 | By
State spends Sh170b on fuel stabilisation
State spends Sh170b on fuel stabilisation PHOTO/Print

Kenyans may not be able to enjoy the effects of the downturn in the global oil market which has seen prices plummeting to a near five-month low, analysts have predicted.

Oil prices fell nearly 4 per cent on Wednesday to their lowest settlements since June, with worries about global fuel demand mounting after US data showed a larger-than-expected rise in gasoline inventories.

According to Reuters, Brent crude futures settled down $2.90 (Sh444.7) or 3.8 per cent, at $74.30 (Sh11,393) a barrel, while US WTI crude futures fell by $2.94 (Sh450.8) or 4.1 per cent to $69.38 (Sh10,639) a barrel.

“There is demand destruction coming in from the fuel side,” said Dennis Kissler, senior vice president of trading at BOK Financial as quoted by Reuters. But according to Ronny Chokaa, a senior research Analyst at AIB-AXYS Africa, the anticipated reduction in fuel prices remains a distant dream in Kenya, largely due to a trio of formidable factors including the relentless pressure from foreign exchange (FX) fluctuations, the government’s ambitious fiscal revenue targets and Kenya’s unique G-to-G oil import structure.

“While the softening of global crude prices since the start of December 2023 comes on the back of unwinding of accumulated oil inventories, I do not anticipate similar trickle-down effects to local pump prices in Kenya, largely due to a combination of FX pressures, ambitious fiscal revenue targets and Kenya’s exclusive G-to-G oil import structure,” Chokaa said.

In an intricate dance between economic policy and politics, ordinary Kenyans find themselves caught in the crossfire, bearing the brunt of high fuel prices despite the global downtrend.

This is the paradox that defines Kenya’s oil market - a compelling narrative of global trends, local realities, and the gap in between. As we usher in December 2023, the global crude oil market is experiencing a softening of prices.

This unexpected turn of events is largely due to the unwinding of accumulated oil inventories. Earlier this year, the Kenyan Government opted for a G-to-G oil deal in March 2023 to address the US Dollar liquidity challenges and exchange rate volatility caused by the global dollar shortage at the time.

This was expected to also ease speculative tendencies in the foreign exchange market which gave rise to worsened exchange volatility leading to a sharp depreciation of the Kenyan shilling against the dollar. In addition, the G-to-G deal was also prompted by a threat by oil marketing companies not to import fuel. This threat was evident from several incidences of fuel shortages at the retail petrol stations.

But as the festive spirit of Christmas begins to fill the air, a crucial announcement looms on the horizon. On December 14, the Energy Petroleum Regulatory Authority (EPRA) is set to announce the monthly price adjustments for fuel.

However, the joyous holiday season may be tinged with a hint of concern for many Kenyans. Despite the global downturn in oil prices, the prospect of lower pump prices remains uncertain.

Currently, a litre of Super petrol is retailing at Sh211 per litre, Diesel at 200.99 and Kerosene at Sh202.61. The harsh reality of high commodity prices and dwindling disposable income casts a long shadow over the celebrations.

The common Kenyan, already grappling with the economic strain, may have to brace for the impact. In the face of these challenges, the anticipation of the announcement becomes a ticking clock, echoing the hopes of many Kenyans for a respite in these tough times.

More on Business


ADVERTISEMENT