Business

Oil marketers in panic over reduced demand, loss of Uganda market

Tuesday, November 28th, 2023 04:15 | By
Oil
PHOTO/Print

Kenya is grappling with a substantial dip in fuel demand, sending shockwaves through the Oil Marketing Companies (OMCs), as they find themselves burdened with significant stock purchased at higher prices.

The repercussions for OMCs are twofold. First, the excess stock acquired at high prices becomes a financial burden, eroding profit margins and hindering liquidity.

Second, the loss of the Ugandan market exacerbates the challenges, leaving companies with a critical need to reassess and restructure their operations.

The looming threat of a sharp decline in fuel prices during the upcoming review further compounds the challenges faced by these companies, potentially leading to substantial losses.

The situation has intensified as many OMCs grapple with the aftermath of losing the Ugandan market.

Transit sales, which typically constitute 40 per cent of total sales for these companies, are now at risk. The panic among OMCs is palpable, with a significant portion of the industry heavily reliant on transit sales. For some smaller OMCs, transit sales account for 100 per cent of their total revenue.

The sudden disruption in this channel spells potential closure or relocation for these businesses, pushing them to the brink of survival.

“The majority of the small OMCs rely on transit sales. Some do 100 per cent of their sales through that channel. For those, it means they will close shop and/or relocate,” said Mwango Capital in a research note.

Industry analysts attribute the decline in fuel demand to a myriad of factors, including a slowdown in economic activities, changes in consumer behavior, and the global shift towards renewable energy sources.

“Petroleum is the crystal ball... When people move, they spend. Petroleum is the power to move. People have reduced their movements significantly (35-40pc). Spending is that much less- says,” said a source at the Petroleum Outlets Association. The Covid-19 pandemic’s lingering effects have also played a role in shaping consumer preferences.

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