Global Crude Oil prices rarely influence the fuel prices in the country, the Institute of Economic Affairs (IEA) has explained.
The explanation features an economic relationship of costs including the relationship between demand and supply within the international oil markets.
According to IEA, Kenya mainly imports refined oil and not crude oil which is one factor why these changes may not feature in the Kenyan market.
Additionally, the report also explains that petroleum products are subject to numerous transactions along the supply chain. If these transactions fail to decrease parallel to the internationally tabled crude oil prices, then the final consumer price will not reflect the changes.
“Therefore, the price of crude oil may have decreased but if the costs of all these other variables increase then the consumer will not enjoy the notable savings at the pump”, states the IEA.
Further, the report also explains that countries which produce oil and those that refine oil are the ones most likely affected by the global crude oil price reductions.
This is because refiners' profit margins are expected to increase if other costs of production remain constant or decrease.
Another factor that affects fuel prices in the country is the United States Dollar (USD) exchange rate of the country since oil is traded in USD.
According to the report, exchange rates used by EPRA are different from those announced by the Central Bank of Kenya (CBK), in that their correlations differ.
“In this context, we utilized EPRA’s rates and incorporated CBK’s rates for comparative analysis.”
“Strong correlations of 0.88, 0.90, and 0.89 were observed between the USD/ Ksh exchange rate and fuel prices in Kenya for Diesel, Kerosene, and Super Petrol, respectively using the EPRA exchange rates,” stated IEA.
Additionally, the report mentions the impacts of taxation on consumer prices for petroleum products in the country.
EPRA announces fuel price reviews every month, with Kenyans anticipating price reductions owing to the global dip in crude oil.
In the January price review reductions, Super Petrol decreased by Ksh5, Diesel by Ksh5, and Kerosene by Ksh4.82 per litre.
Currently in Nairobi, Super Petrol is retailing at Ksh207.36, Diesel at Ksh196.47, and Kerosene at Ksh194.23.
