Cheaper fuel in sight as IMF projects fall in crude oil prices

By James Anyanzwa

KENYA: Crude oil prices are projected to fall this year. This signals a reprieve for motorists and households who have spent fortunes on fuel.

The projected fall in fuel prices arises from increased supply from non-Organisation of Petroleum Exporting Countries (Opec) member countries. According to the International Monetary Fund (IMF), crude oil prices have edged lower, mainly as a result of the continued supply surge in North America.

The fund, in its latest World Economic Outlook report has raised growth projections in non-Opec crude oil supply to 1.8 million barrels per day in 2014 against the demand of 1.4 million barrels per day.

Gas and coal

According to the report dated April 2014, world energy prices have been fairly flat since October last year, with the falling prices of crude oil offset by rising prices of natural gas and coal.

The report notes that growth in crude oil supply will be driven by the US and Canada.

“Prices have been held up by mounting Opec supply pressures – notably from disruptions in Libya, Nigeria, Syria and Yemen and from sanctions against Iran,” says the report. “Oil prices based on the futures market are projected to decline during the outlook period consistent with expanding oil supply and still lukewarm demand.”

This month, the Energy Regulatory Commission increased the retail price of super petrol by 55 cents to retail at a maximum of Sh114.16 in Nairobi from Sh113.61 and marginally reduced the maximum prices on diesel and kerosene by Sh1.05 and 75 cents per litre respectively.

Diesel now retails at Sh103.82, down from Sh105.80, while kerosene went down to Sh83.16 from last month’s Sh83.91. Last month, the price of crude decreased marginally to $108.30 per barrel from $109.95 (Sh9,522) in February. But the local currency weakened slightly, trading at an average of Sh86.51 to the dollar compared to Sh86.30 in February.

Emerging markets

According to the report, financial conditions in emerging market economies have tightened recently in response to a more difficult external ?nancial environment.

The report says foreign investors are also sensitive to risks in these economies, resulting in tight financial conditions. The report states that bond rates and spreads have increased, and equity markets have moved sideways. In addition gross capital in?ows have declined, and exchange rates have depreciated.

“Overall, the cost of capital in emerging market economies has increased, which will dampen investment and growth, although increased exports to advanced economies are expected to provide some offset,” says report.

Monetary conditions have tightened in many emerging market economies such as Kenya, re?ecting changes in external funding.

Bank credit growth has also started to slow in many economies, but remains at double-digit rates in some, exceeding GDP growth by substantial margins. Currencies of many major emerging markets have depreciated against the dollar, re?ecting a weakening of their medium-term growth outlooks.