Fuel prices to go up again amid diesel export ban by Russia

Expected higher prices on supply shortages are likely to have a knock-on effect on key transport and manufacturing sectors. [iStockphoto]

Russia’s ban on diesel exports from Thursday evening has sparked fears of a fresh rally in global fuel prices over the next few months, dimming Kenyans’ hope of lower prices at the pump in the near term.

Moscow said Thursday it has temporarily banned exports of diesel fuel in a bid to “stabilise domestic supplies”.

The announcement immediately drove diesel prices higher in already tight global fuel markets.

Moscow’s ban applies to all countries except four ex-Soviet states - Armenia, Belarus, Kazakhstan, and Kyrgyzstan.

Russia is the world’s largest exporter of diesel fuel, accounting for about 10 per cent of global exports.

Despite the Russian government saying the export ban was necessary to safeguard domestic supply, some analysts believe it is also a way for Moscow to pressure the West over the ongoing war in Ukraine.

The US and European governments have been placing sanctions on Russia in a bid to exert pressure on President Vladimir Putin to withdraw his forces from Ukraine.

The ban is expected to remain in effect until at least the end of the year. However, the Russian government could extend the ban if it deems it necessary.

The ban is likely to have a significant impact on global diesel markets, including Kenya. 

The ban is expected to lead to higher diesel prices for consumers and businesses around the world. This could have a knock-on effect on the global economy, as higher diesel prices could lead to higher transportation and manufacturing costs.

While Russian oil shipments are not known to come to Kenya, analysts said the global freeze in the supply of Russian diesel will mean more competition for barrels from other sources, such as the Middle East - Kenya’s leading supplier.

Saudi Arabia’s Murban crude oil, which forms a big chunk of the refined petroleum products imported to Kenya, was trading at $95.99 (Sh14,110) per barrel on Friday, up 0.61 per cent compared to Thursday, a spot check by The Standard showed.

Record fuel prices in the last few months have hit the living standards of millions of Kenyans. [File, Standard]

Analysts said any reduction in the global oil supply will come at a tricky time amid mounting global demand.

Russia is the third-largest oil producer in the world after the US and Saudi Arabia and the second-largest exporter after Saudi Arabia, with the US consuming a huge proportion of the oil it produces.

Murban - which is preferred by Kenya - is a flagship-grade produced in Abu Dhabi in the United Arab Emirates and is also typically consumed in Asian markets, such as China, India and Japan. Murban differs physically from Brent, WTI or other oil produced elsewhere in the world.

Diesel is the lifeblood of industrial output and is a key fuel for trucks, buses, and other heavy machinery. It is also used in power generation. The ban is likely to lead to higher diesel prices for consumers and businesses around the world, including in Kenya. Record fuel prices in the last few months have hit the living standards of millions of Kenyans.

Sustained high fuel prices have also been having a knock-on effect on the cost of living and doing business in the country, with the price of goods, household energy bills, and transport.

This has posed an economic and social headache for President William Ruto at a time when hard-pressed and restless Kenyans want the Kenya Kwanza administration to urgently address the cost of living.

Fuel costs have a direct bearing on inflation, being one of the items in the basket of goods and services whose pricing is tracked to measure the cost of living. High diesel prices have raised the cost of transport, mechanised farming, and industrial production.

The economy also uses diesel for electricity generation, meaning that higher prices of fuel automatically result in higher fuel cost charges on power bills.

Producers of manufactured goods factor in the higher cost of power in their factories and diesel for the transportation of goods, which are passed on to the consumer.

Food costs are already elevated due to supply constraints, with higher transport charges expected to be loaded onto the final price.

In its latest price review, a week ago, the energy regulator raised fuel prices to historic levels by Sh16.96 for Super Petrol, Sh21.32 for Diesel, and Sh33.13 for Kerosene for the September-November pricing cycle, explaining that global fuel prices had also recorded a similar surge.