Oil Prices in Kenya Expected to Drop Even Further

  • File image of a fuel attendant at work at a petrol station.
    File image of a fuel attendant at work at a petrol station.
    File
  • Oil prices in the United States dropped to below zero, turning negative for the first time in history. This means that the producers are at a race to offload oil, paying buyers to take the commodity.

    Demand for oil has gone low, with most industries such as aviation, out of operation due to the outbreak of Coronavirus (Covid-19).

    In the United States, the preferred measure and pricing model of oil is the West Texas Intermediate (WTI) different from Brent, the international benchmark used by the UK, Kenya and the rest of the world.

    Oil tanks at the Kipevu terminal in Mombasa.
    Oil tanks at the Kipevu terminal in Mombasa.
    Daily Nation

    However WTI prices trading at minus $ 37.63 (approximately Ksh 4,000) a barrel, still have an impact on Brent, which has been trading based on June contracts, down by 8.9 per cent to less than $ 26 (approximately Ksh 2600) a barrel.

    Deirdre Michie, UK's offshore and oil gas sector lobbyist was quoted by BBC explaining how the prices would fall across the globe, basing his analysis on the strains the oil market has faced, and warned that June prices could also fall if lockdowns remain in place. Oil is booked one month to purchase and May futures contracts are due to expire on Tuesday, April 21.

    "I'm really not optimistic about the prospects for oil companies or oil prices. The dynamics of this US market are different from those directly driving UK produced Brent but we will not escape the impact," Michie explained.

    Nicholas Gachara, a financial analyst in Nairobi, Kenya, informed Kenyans.co.ke that the oil prices drop would benefit Kenyans in June 2020, if the country booked oil at this drop period.

    "There is a glut in the market, excess supply and no demand. Airlines consume about 5 million barrels per month and now they are grounded. The law of supply and demand comes in, whereby in excess supply and no demand, prices shoot down.

    "For Kenya, our prices will continue dropping, if the consignment for May and June is booked now. This is despite our exchange rate rising as 1 dollar trades at around Ksh 105. 

    The expert stated that oil prices in Kenya would shoot down around June.

    "I saw that petrol and diesel in Nairobi sell at Ksh 92 and 99 respectively. I expect prices to shoot down to around Ksh 90," he analysed. 

    Oil tanker Mt Frixos discharges crude oil at Kipevu terminal at the port of Mombasa in 2006
    Oil tanker Mt Frixos discharges crude oil at Kipevu terminal at the port of Mombasa in 2006
    The Standard