Fuel prices could drop further, but freight costs a concern

 

Fuel prices in Kenya could register a third straight monthly drop on low global crude prices, with eyes on the Energy and Petroleum Regulatory Authority’s next review.

Monthly pump prices are set to be announced next Wednesday, at a time when landed cargoes at the Port of Mombasa have been at lower costs based on low global crude prices.

Vessels plying the Arab nations, the current main source of Kenya's fuel products import, are being spared from the Red Sea attacks.

Crude prices on the OPEC basket averaged $78.21 per barrel in January, official data shows, and slightly dropped to $77.47 per barrel in the first week of February.

Brent prices touched a low of $75.91 per barrel in the first week of January, the lowest mark since June last year and with Kenya’s pump prices being pegged on the previous month’s imports, it means consumers could see another drop in pump prices if the government is to pass the benefits.

There has been a significant drop in global prices, but Kenyans feel they are yet to get the full benefits as high taxes, including a return to 16 per cent VAT from eight per cent last year, continue to keep prices up.

Super Petrol decreased by ksh5, Diesel by Ksh5, and Kerosene by Ksh4. 82 per litre in the January-February cycle, which was the second drop after almost similar margins in December-January.

In Nairobi, super petrol, diesel and kerosene will currently retailing at Sh207.36, 196.47 and Sh194.23, respectively.

EPRA noted drops in the landed costs of imported super petrol, diesel and kerosene, by 2.4 per cent,9.06 per cent and 4.33 per cent, respectively.

This translated to a drop from $694.44 per cubic metre of petrol in November to $677. 78 in December, diesel dropped from $826.01 per cubic metre to $751.15 per cubic metre while that of kerosene went down to $727 per cubic metre from $759.93.

During the month, EPRA quoted murban crude at $91 per barrel, which was much higher than the global, averages of between $75 and $77.80 a barrel.

The price of diesel was cross-subsidised with that of super petrol, according to EPRA director general Daniel Kiptoo.

“OMCs (Oil Marketing Companies) will be compensated for the under recovery of costs from the petroleum development levy,” Kiptoo said.

With China, the world’s second-largest economy, heading into its annual 15-days New Year celebrations, demand for oil is likely to drop on reduced manufacturing activities, with economic activities expected to remain subdued for a fifth straight month in February.

EPRA has however continued to blame the weak shilling to the Dollar on costly imports, even as the State remains confident of the government-to-government deal to tame further price hikes and dollar shortage, amid a shake-up on the local OMCs involved in the importation of products.

Oryx Energies Limited has since been dropped from the list of importers, and replaced with Asharami & One Petroleum, by Saudi Aramco.

According to the Petroleum Institute of East Africa (PIEA), the government-to-government deal has however helped ensure stability in the supply of products in Kenya, while easing pressure on the dollar market.

The attacks on vessels in the Red Sea by Iran-backed Houthi rebel in Yemen, have nevertheless negatively impacted on global maritime trade, with freight costs going up as shipping companies re-route vessels.

Shipping lines have been diverting their vessels away from the Red Sea avoiding the Suez Canal which is a key route for voyages to Mombasa and the East African coastline.

Israel's war on Gaza was also feared it could affect global fuel supplies but the impact is yet to be felt and instead, oil producing countries have been cutting output to try and stabilise prices which have been going down.

“A wider war in the Middle East with involvement of the US may initially uplift oil prices, but depending on the size of the conflict, it could also turn into a demand destroyer,” data analysts and financial analysts, Mihr Thakar, told the Star.

Kenya Ports Authority managing director William Ruto had however earlier indicated that the Port of Mombasa is not affected.

The Consumers Federation of Kenya has been calling on the government to address the numerous taxes and levies on fuel products, to ensure consumers benefit when global prices are low.

The OPEC Secretariat announced an additional “voluntary cuts”, on production to the total of 2.2 million barrels per day, which it said is aimed at “supporting the stability and balance of oil markets.”

“These voluntary cuts are calculated from the 2024 required production level and are in addition to the voluntary cuts previously announced in April 2023 and later extended until the end of 2024,” it said in a statement.

BY  MARTIN MWITA