Mixed bag of fortunes for Kenya as global oil prices remain low

The International Monetary Fund (IMF) said oil prices will remain low over the coming years due to continued high production that's flooding the market, slowed economic growth and continued search for cleaner alternatives to power economies.PHOTO: COURTESY

Global oil prices are unlikely to hit the highs experienced before the prices collapsed two years ago.

The International Monetary Fund (IMF) said oil prices will remain low over the coming years due to continued high production that's flooding the market, slowed economic growth and continued search for cleaner alternatives to power economies.

Should this pass, it will be a mixed bag for Kenya. Low prices will reduce the country's import bill and the cost of living. It will also mean low revenues and possibly further slowdown of investor activity for Kenya's fledgling oil production industry.

IMF said the industry would experience what it termed a new normal for oil prices and does not expect any sharp rise. Instead, the fund expects the prices to stabilise at their current levels.

The IMF cites sustained high production by oil producers as well as reduced demand for the commodity in many emerging and developed markets where economic growth has slowed among the factors that will maintain current price levels.

"While oil prices have stabilised somewhat in recent months, there are good reasons to believe they won't return to the high levels that preceded their historic collapse two years ago," IMF said in its latest brief on oil prices.

"For one thing, shale oil production has permanently added to supply at lower prices. For another, demand will be curtailed by slower growth in emerging markets and global efforts to cut down on carbon emissions. It all adds up to a 'new normal' for oil."

The World Bank last week forecast that oil prices would stay at around $55 (Sh5, 581) per barrel in 2017. Currently, a barrel of oil is going for $52 (Sh5, 277) per barrel, which is the highest it has been in one year. This is a sharp contrast to the $100 levels seen between 2011 and 2014.

The 'new normal' is both good and bad for Kenya. The country currently imports all the petroleum products that it consumes and the low prices will mean sustaining the low cost of living seen over the last year. The flip side, however, is that Kenya is looking to start exporting crude oil and the low prices could be a hit for the infant industry and the country, which has high expectations on the industry.

Last year, crude oil prices reduced to an average of $52.53 per barrel in 2015, from an average of $99.45 per barrel in 2014. According to the Kenya Economic Survey 2016, Kenya imported a total of 4.4 million tonnes of petroleum products last year. There was a slight increase between what was imported in 2014 and last year, but the money spent reduced by 32.6 per cent following the falling prices.

"The total import bill for petroleum products declined by 32.6 per cent to Sh226.1 billion from Sh335.7 billion in 2014. This was mainly due to reduced oil prices in the international market," the survey report indicated.