Why Is Fuel So Expensive In Kenya Despite Global Prices Reducing?

Despite the elevated fuel prices in Kenya, global fuel prices have declined by 50.1 percent to USD 78.4 per barrel as of 14th December 2022 from the peak of USD 117.7 per barrel recorded at the beginning of June 2022.

Countries around the world have been taking measures to insulate themselves from the price shocks caused by the Russian Invasion of Ukraine.

Over the same period, from June 2022 to date, the fuel prices in Kenya have increased by 11.4, 15.7, and 14.1 percent to 177.3, 162.0, and 145.9 in December 2022 from 159.1, 140.0, and 127.9 in June 2022 per liter of Super Petrol, Diesel and Kerosene, respectively.

The decoupling from global fuel prices is majorly attributable to the partial removal of fuel subsidies under the Petroleum Development Levy program by the current administration in September 2022.

On a YTD basis, the current prices represent a 0.7 percent increase from the USD 77.9 per barrel recorded on 3rd January 2022, pointing towards stabilization of the global fuel prices.

On 3rd December 2022, the G7 member countries formally imposed a USD 60.0 price cap per barrel of Russian oil which took effect on 5th December.

This is expected to stabilize global energy prices even further and cool down global inflation which has been partly attributable to the elevated fuel prices.

Additionally, the decline in global oil prices is driven by the global drop in demand for fuel due to the fears of global recession, following another USA Fed interest rate hike in December and the new COVID-19 lockdowns in China.

Notably, Kenyans have continued to be cushioned against the increase in the average landed costs of fuel due to the continued subsidies, as the Government partially removed the fuel subsidies in September 2022.

“However, we have maintained that the subsidy program is unsustainable since it is a burden to the country’s expenditure. As such, we expect the new administration to completely do away with the fuel subsidies and adjust the domestic fuel prices to ease the pressure on expenditure consequently reducing the need for excessive borrowing,” said Cytonn.

“With fuel being a major contributor to Kenya’s inflation, we also expect the cost of living to remain elevated, and therefore, the business environment is expected to remain subdued emanating from the decline in consumer spending.”

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