Oil Traders Reveal Reasons Behind Spike in Fuel Prices

Unidentified Petrol Station
An photo of unidentified Petrol Station.

Petroleum Outlets Association of Kenya (POAK) has explained that the government was justified in increasing pump prices, especially, when considering all contributing factors.

Speaking to Kenyans.co.ke, POAK  Chief Executive Officer John Njogu on Friday, September 15, explained that the skyrocketing prices were expected since factors such as the exchange rate for Dollar had clearly proven hurtful to international trade.

In particular, Njogu explained that the month of August 2023, saw Kenyan Shilling significantly weaken against US Dollar, which is currently trading at around Ksh150 for one American Dollar.

"This has made imported fuel more expensive in Kenya. This means that Kenyan importers have to pay more shillings for imported oil, and it will definitely reflect at the pump where motorists will bear the cost.

EPRA Director-General Daniel Kiptoo (right) addresses the Public and Investment Committee on Commercial Affairs and Energy on April 12, 2023.
EPRA Director-General Daniel Kiptoo (right) addresses the Public Investments Committee on Commercial Affairs and Energy on April 12, 2023.
National Assembly

Dollar Exchange Rate

A weakening Shilling also made it more expensive for the Kenyan government to service the debt owned to Gulf nations for deferred payments for imported oil.

He explained that it takes more Shillings to repay foreign currency debt, and in Kenyan case, the government faced the dilemma of serving the deferred payments and calling for new imports.  

The weakening of Kenyan Shilling also has a general impact on local products, including inflation of petroleum products. This is because imported goods and services become more expensive, which pushes up the prices of domestic goods and services.

According to POAK Chief Executive Officer, the government should consider maintaining a stable exchange rate through policy interventions. 

A collage of President William Ruto (left) and oil arriving at the port of Mombasa (right)
A collage of President William Ruto (left) and oil arriving at the port of Mombasa (right)

Crude Oil Prices  

Njogu also explained that the price for crude oil have significantly gone up at the international markets due to a number of factors, including the Russia-Ukraine war, supply chain disruptions, and increased demand.

"The price of crude oil is the main driver of fuel prices. Crude oil prices have been rising in recent months, and it's obvious that the same may continue to happen in the foreseeable future," Njogu stated.

The Russia-Ukraine war has disrupted oil supplies from Russia, which is a major oil producer. This has led to a tightening of the global oil market and higher prices.

Supply Chain Disruptions

Supply chain disruptions have also contributed to higher oil prices. The COVID-19 pandemic had disrupted the global supply chain, and continues to make it more difficult for companies to transport oil and other commodities.

As of today, September 15, 2023, the international oil prices for August 2023 range between Ksh12,335.40 ($84) to Ksh12,867.00 ($87.62) per barrel.

These prices are up from the previous months, when crude oil was trading at Ksh12,241.42 ($83.36) per barrel.

CS Njuguna
National Treasury and Planning Cabinet Secretary, Njuguna Ndung'u, posses for a photo before presenting the 2023/2024 budget to the National Assembly on June 15, 2023.
Ministry of Treasury

Finance Act 2023

It was observed that an increase of taxes on petroleum products, especially, in the Finance Act 2023, is part of the reason why the August 2023 fuel prices have gone higher.

The state of fuel economy is currently brewing financial panic that may lead to an inefficient fuel distribution system. This leads to higher fuel prices due to transportation costs.

POAK noted that speculative trading in the oil market can also contribute to rising fuel prices. This is making it difficult for businesses to operate and for people to make ends meet.

As a result of these factors, the International Energy Agency (IEA) expects oil prices to remain high in the near future.

The IEA predicts that Brent crude oil will average Ksh13,182.72 ($89.77) per barrel in the fourth quarter of 2023 and Ksh14,334.03 ($97.61) per barrel in 2024.

IEA also observed that the high oil prices are having a negative impact on the global economy. They are driving up the cost of transportation, food, and other essential goods and services, hence making it difficult for businesses to operate and for people to make ends meet.