Saudi Arabia and Russia's decision to cut oil production by 1 million and 500,000 barrels per day, respectively, has sent shockwaves in the international energy landscape, sparking fears of a deficit in the global market.
On Tuesday, July 4, economic experts warned that the ripple effect may be bigger than expected, including the immediate increase in oil prices.
The news sparked fears in Kenya that the cost of fuel may rise further a few days after the Energy and Petroleum Regulatory Authority (EPRA) reviewed fuel prices upwards in line with the 16 per cent VAT on petroleum products.
Kenyans.co.ke sought insights of economics and analysts to explain the potential impact of Saudi Arabia and Russia's latest move on fuel prices in Kenya.
The key question was whether the major developments would increase the price of fuel from the current Ksh195.53 per litre of petrol.
Renowned economist and analyst Prof XN Iraki noted that while the decision by Saudi Arabia and Russia would affect the global market, it was not definite whether the effects would be felt in Kenya.
“We need to look at the global market on whether the non-Organization of the Petroleum Exporting Countries (OPEC) would produce more oil to cover the deficit,” he explained.
Iraki noted that fuel prices would increase significantly should non-OPEC countries fail to cover the deficit.
In that scenario, Iraki revealed that Kenyan could be saved from the high prices due to the country's current import contract with Middle Eastern oil giants Aramco, National Oil Corporation Global Trading (ADNOC) and Emirate’s National Oil Company (NOC).
Giving intricate details of the deal on March 2023, Energy and Petroleum Cabinet Secretary Davis Chirchir explained that the dollar would not determine fuel prices in the country as the government would purchase petroleum products in Kenyan shillings through a credit system for six months.
Economist Sam Okumu further noted that the current high prices had driven down the demand for fuel, and importers would unlikely raise prices further.
“Our oil market is driven by global market forces which means if demand is high but supply low, the prices are expected to go up.
“Our consolation is that due to current prices, the demand has been affected. People are seeking alternative means to using fossil fuels,” he explained why oil importers in Kenya were highly unlikely to increase prices.
On Thursday, June 1, President William Ruto revealed that his administration was working towards liberating the country from over-dependence on fossil fuels.
The President noted that introducing electric motorcycles for boda-boda riders is key to adopting green energy.
“We are developing and by September we will have a mechanism where you can get your boda-boda that does not need petrol, that will be run on electricity and that is financed by not a predatory system,” Ruto announced then.
