Brent Prices Fall to 11,161.26 Shillings Amid Rate Hike Concerns

Global crude oil prices fell on Wednesday 14^th September 2022, erasing initial gains, amid persistent demand concerns and fears of rate hikes due to the elevated inflation rates.

Brent futures fell 0.46 percent to $92.74 (11,161.26 shillings) a barrel while the U.S. West Texas Intermediate crude was at $86.96 (10,465.64 shillings) a barrel, down 0.40 percent.

Data released on Tuesday 13th showed that in the US, the annual retail inflation rate eased to 8.3 percent from 8.5 percent in July. Even so, it remains elevated and higher than the consensus estimates of 8.1 percent. The decline in gasoline prices was offset by higher costs of food, shelter, and medical care services.

Market analysts say that higher inflation in the US in August 2022 has raised fears that the Federal Reserve could deliver another hefty interest rate hike next week.

Oil futures had risen on the back of a robust demand outlook by the Organization of the Petroleum Exporting Countries (Opec). In its latest monthly report oil market report, OPEC said that oil demand in the Organization for Economic Co-operation and Development (OECD) is estimated to grow by 1.6 million barrels per day (mb/d) in 2022, while non-OECD growth is expected at 1.5 million barrels per day.

Investors now await data on US crude oil and gasoline inventories, to be released by the Energy Information Agency (EIA).

Projections show that US EIA will likely note an increase in US crude oil and gasoline stocks and a minor decline in distillates. Ahead of the EIA report, API reported a bigger than expected 6.04 million barrels increase in US crude oil stocks putting some pressure on price.

The recovery in the US dollar and demand concerns following China’s struggle with controlling the spread of the pandemic has also weighed on prices.

Oil demand in 2023 is expected to be supported by a still-solid economic performance in major consuming countries, as well as potential improvements in COVID-19 restrictions and reduced geopolitical uncertainties, according to OPEC.

The situation outlook for Kenya, where the new administration plans to face out the fuel subsidy program, which has seen the government spend over 144 billion shillings in the past year to stabilize fuel prices, is worse.

In the third review of the International Monitory Fund IMF $2.34 billion loan, Kenya committed to ending the fuel subsidy before October 2022. The subsidy has been used to cushion consumers from high global prices.

Kenyans are currently buying a liter of Petrol at 159.12, Kerosene at 127.9 4, and diesel at 140 shillings. The country is eagerly awaiting the new prices set to be announced by EPRA on 14^th September 2022.

Without the subsidy, prices in the last review would have increased to 214.13 shillings for diesel, 206.17 shillings for petrol, and 202.11 shillings for Kerosene.

If the subsidy is removed and the prices are reviewed upwards, then food prices will automatically increase in October. The cost of living will continue to rise even further.

The cost of other end products of crude oil such as cooking oil has also shot up since the year began. A liter of the commodity is now selling for 436 shillings, 2 liters at 852 shillings, while 3 liter of the same commodity now costs 1,306 shillings across the country.

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