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Commodity Watch

New Fuel Prices Announced Marred with Disappointments

BY Soko Directory Team · January 15, 2016 06:01 am

The Energy and Regulatory Commission has announced the new oil prices that took effect as from Thursday midnight.

The prices however were below the expectations as many people, especially motorists, expected the prices of such fuels as diesel to drop further but the energy regulatory body just cut the prices by a small margin.

According to the ERC, new prices, a liter of petrol will now retail at an average of 88.64 shillings, this being a reduction of 1.42 shillings from the initial price, a liter of diesel on the other hand will retail at 76.70 shillings this being a reduction of 1.81 shillings from the previous price while Kerosene, used the majority of Kenyans, more than 50 percent, has dropped by the biggest margin of Sh7.14 to Sh46.13 a liter and these will hold for the next one month before another review. In this recent review, kerosene users are the biggest beneficiaries.

Most Kenyans expected the price of fuel to drop twice than last month but that has not been the case. The reason behind this is that the local prices of fuel in Kenya do not usually reflect the global trend in prices because, whenever crude oil is ordered, it often takes one month to be delivered at the port of Mombasa. This implies that Kenya is always one month behind in terms of the global oil prices. For instance, the current crude oil stock was bought last month when the global oil prices had dropped as low as $37 per barrel, down from $43 per barrel but the lag of one month does not affects the pricing in Kenya.

The main petroleum refinery in Mombasa was closed down. This has forced Kenyans to buy already refined petroleum products. This implies that the country does not buy crude oil and therefore, not affected by the low oil global prices. If the refinery at Mombasa was working, the country could be buying crude oil at the current low prices before refining it and, in the process, giving the country the full benefit of the global oil prices.

Last month, from the 1st of December 2015, the government imposed an excise duty on diesel and this has denied the product a full price cut as the excise duty is captured. All factories and companies in Kenya rely heavily on diesel to run their machines. This implies that the cost of production of goods, which majorly depends on the energy sector, is often determined by the price of diesel. A huge cut in diesel prices, reduces the cost of production which in turn reduces the cost of goods and, in the process, reduce the inflation rate which is good for the development of the economy. Kenyans products have always faced a stiff completion prom products from other countries in terms of the prices because the cost of production in such countries is lower than it is in Kenya.

The trend of oil prices in Kenya also tends to incline towards favoring only oil marketers and sellers with the consumer having little to benefit from. Something key that has always come up is the cost of transport. The government has not put in place mechanisms that would regulate the cost of transport in relation to the oil prices. Travelers continue to pay hiked fares with the vehicle owners ripping big and the wanjiku suffering.

Low oil prices are beneficial to a country in many ways. For instance, the oil prices determine the power of the energy sector which is key in the manufacturing sector. The reduction leads to the reduction of the cost of production which in turn attracts more investors. The reduction in the cost of production leads in the reduction in the prices of goods, especially foodstuffs which in turn leads to the decrease in the inflation rate. This will finally boost the economy.

Article by Juma Fred.

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system. Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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