Petrol set to retail at under Sh90 even as international crude oil prices start going up

Kenyans are hopeful that they will get a major cut in their cost of fuel mid this month when the petroleum industry regulator announces new retail prices even as crude oil prices start going up again.

This follows sustained low prices of crude oil over the last month, which dipped to a low of $20 (Sh2,000) per barrel last week, the lowest in close to two decades.

Prices have, however, started edging up as major oil producers reduce the amount of oil they are bringing to the market.

Prices had plunged owing to reduced demand fuelled by the coronavirus outbreak as well as differences between Russia and Saudi Arabia that saw the two large oil producers flood the market with the commodity.

Saudi Arabia has, however, started cutting production, which saw prices go up slightly, towards the end of the week.

Early yesterday, a barrel of Brent Crude Oil traded at slightly over $34 (Sh3,400).

Boon time

Motorists and local industries such as transport and manufacturing can, however, rest easy and be assured that come April 14, they will enjoy lower fuel prices.

The Energy and Petroleum Regulatory Authority (EPRA) while publishing the pump prices on March 15 noted that “effect of the recent crash in crude oil prices will be reflected in the subsequent pump price reviews.”

Analysts projected a 20 per cent retail price cut to about Sh88 per litre from the current Sh110 per litre of super petrol in Nairobi.

This is on the assumption of a landed cost of Sh 25 per litre of super petrol, which is how much is needed to acquire and move the product to Mombasa. This is then added to the fixed costs that add up to Sh63 which include, taxes (at about Sh48 per litre) as well as distribution and dealer margins (Sh15.66).

“If the landed cost of fuel is, for example, Sh25 instead of Sh48 (seen for the cargo used in computing the retail price in March), the consumer will benefit by about Sh23.

In other words, the retail price of fuel in April will be around Sh88, to reflect a reduction of about 20 per cent and not 50 per cent as (some members of the) public might expect,” explained an industry insider who sought anonymity.

Easing tension

Saudi Arabia on Thursday said it would cut oil production by 10 million barrels per day after it started easing up on a disagreement that the country has been having with Russia. This followed an intervention by the United States, whose President Donald Trump brokered a deal between the two countries.

Crude oil prices declined sharply in early March following a spat between Saudi Arabia and Russia on possibilities of reducing oil production to cushion prices following a decline in international demand.

The Organisation of Petroleum Exporting Countries (OPEC) had been in agreement with Russia on the need to protect prices but Russia would later back out of the deal. This angered Saudi Arabia, and set it on a warpath with the eastern European powerhouse, and it flooded the market with oil, much to the chagrin of other producers but to the advantage of net importers like Kenya.

Reduction in production might, however, not mean much to the oil producing countries as it might not offset the loss in demand for oil.

Fatih Birol, executive director of the International Energy Agency, told Reuters that measures to contain the spread of the coronavirus had led to an “unprecedented” demand loss that could reach as much as a quarter of global consumption.

Even with output cuts of 10 million barrels per day (bpd), the equivalent of 10 per cent of global supply, oil inventories would still rise by 15 million barrels a day in the second quarter of 2020, Birol said.

“This would mean that there will still be huge pressures on global oil markets,” the head of the energy watchdog said.

“Monday’s meeting with OPEC+ countries can well be a good start, but even the numbers people are talking about may not be enough to find a solution to the problem. It would only help to mitigate the damage we are seeing.”