Puzzle of Kenya’s high fuel cost despite 16 per cent drop in international prices

EPRA attribute it to the rising landed cost of diesel and super petrol, with a marginal decline for kerosene.

For the fourth week now, the Central Bank of Kenya has been reporting reducing global petroleum prices, which are now lower than they were six weeks ago, on the week ended September 28 by nearly 16 USD (Ksh.2,432) a barrel. 

In its weekly bulletin, CBK says that international prices declined during the week ending Thursday last week, as demand concerns persist, coupled with the dissipating impact of the war between Israel and the Hamas group.

CBK says that Murban oil price fell to 81.59 USD (about Ksh.12,402) per barrel on November 9 from 87.24 USD (about Ksh.13,260) a week before.

 According to monthly releases by EPRA on petroleum prices, international prices have been fluctuating over the last six months, falling drastically in October. In October, the prices dropped to 804 USD per metric ton, the lowest since May this year.

But that decline is yet to be reflected in Kenya.

According to EPRA, the landed cost of super petrol has been on a steady rise, to stand at 827USD per metric ton, the last reported landed cost by EPRA. That is reflected at the pump.

The calculated price of a litre of petrol has risen by more than 47 Kenyan shillings since June, on account of increased taxes, changing exchange rate against the dollar and more importantly the landed cost.

Despite the decline in global oil prices, a litre of petrol has been calculated to retail at Ksh.229, before a price stabilization component that lowered it to Ksh.217 maintaining it at the same rate as published last month.

 For the first time this year, EPRA has indicated that “In this review, the cargoes that have been factored were priced [based on] the average September 2023 Platts price which was much higher than October 2023.”

 EPRA said, “These are cargoes that were discharged at the Port of Mombasa between 10th October and 9th November 2023.” This suggests that Kenya’s current stock was bought before the international price decline that started in September.

In previous announcements, every increment in landed cost has been matched with a pump price increment. International price decline has similarly been matched with a local pump price decline at least in the subsequent month. 

The depreciating shilling against the dollar has not helped the case for Kenya. Between April and October this year, the shilling according to EPRA has lost over 16 points to settle at an average of Ksh.155.64 against the dollar.

It appears that the earliest Kenyans can reap from the global price fluctuations that began in September could be mid-December, were EPRA to base their calculation on oil ordered after September. 

EPRA says that in reducing the pump prices against actual calculations, “The National Treasury has identified resources within the current resource envelope to compensate Oil Marketing Companies, to cushion consumers from increased landed costs.”