What Informed The Reduction Of Fuel By Ksh 1?

During the week, the Energy and Petroleum Regulatory Authority (EPRA) released its monthly statement on the maximum retail fuel prices in Kenya effective 15th October 2022 to 14th November 2022.

Super Petrol, Diesel, and Kerosene prices declined by 0.6%, 1.2%, and 0.7% to Kshs 178.3 per liter, Kshs 163.0 per liter and Kshs 146.9 per liter from Kshs 179.3 per liter, Kshs 165.0 per liter and Kshs 147.9 per liter, respectively.

Key to note, this is the first time since October 2021 that fuel prices have declined. The decline in fuel prices was attributable to:

1. Fuel subsidies of Kshs 18.2 and Kshs 27.5 per liter of diesel and kerosene respectively, were retained after the partial subsidy removal in the month of September 2022,

2. The 9.8% decrease in the Free On Board(FOB) price of Murban crude oil to USD 106.0 per barrel from USD 117.5 per barrel in the month of August 2022, and,

3. A decline in the average landed costs of 10.6%, 6.9%, and 1.8% to USD 726.8, USD 884.5, and USD 883.2 in September 2022 from USD 812.9, USD 949.7, USD 899.6 per cubic meters of Super Petrol, Diesel and Kerosene in August 2022, respectively.

However, the Kenyan shilling continued to depreciate against the US dollar, having declined by 2.7% to Kshs 123.9 in September 2022 from Kshs 120.6 in August, raising the cost of importing fuel, and weighing down the country’s foreign reserves.

Following a decline in the average landed costs of imported fuel, fuel prices in Kenya have declined for the first time since October 2021, despite the partial removal of the fuel subsidies in September 2022 by the new administration after noting that the subsidies were unsustainable.

We have maintained that the subsidy program is unsustainable and is a burden to the country’s expenditure. Going forward, we expect the current administration to completely do away with the fuel subsidy program and adjust the domestic fuel prices to ease pressure on expenditure and consequently reduce the need for excessive borrowing.

However, we expect the cost of fuel to increase in the short-term, following the Organization of the Petroleum Exporting Countries (OPEC) decision to reduce their crude oil production by 2.0 million barrels per day effective November 2022, in a move that will stifle global oil supply.