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Missed opportunity as crude oil falls to its lowest in 17 years

NEWS
By Macharia Kamau | March 20th 2020

Transporters are no longer doing brisk business as disruptions in supply chain mean taking longer to receive cargo. [File, Standard]

Kenyans are set for a major reduction in the retail prices of fuel as global oil prices fall to a 17-year low. This follows reduced demand of the ‘black gold’ owing to coronavirus pandemic, even as major producers continue to flood the market with more oil.

The reduction comes at a time when the shilling has weakened to its lowest since 2015, trading at Sh104.65 against the dollar. The weakening of the local unit is attributed to uncertainty in the export-focused sectors that earn Kenya foreign exchange, which have now been hit hard by Covid-19.

The cost of Brent Crude Oil sunk to $24.88 (Sh2,500) yesterday, levels that were last seen in 2003.

This sets up the country for a substantial drop in the retail prices of fuel - perhaps the only upside for Kenyans, with the economy starting to slow down as Covid-19 effects surge after a number of confirmed cases.

It will, however, be another month before consumers experience a reduction. The slowdown in economic activities will mean a missed opportunity for manufacturing, transporters, airlines and even motorists.

The Energy and Petroleum Regulatory Authority (Epra) said recently that if the low prices are sustained throughout March, then consumers will see a significant drop in the prices of the three fuels that are regulated – super petrol, diesel and kerosene.

“If the current drop is sustained for the next 30 days or so, there could be a significant drop. However, if it stays that way for the next month or until the next (April) price review, we expect some impact for consumers,” said Epra Director-General Pavel Oimeke.

This might, however, not mean much for an economy that has started to feel the effects of Covid-19.

This has worsened the situation for the economy as trading partners announced shutdowns - reducing demand for Kenyan products in addition to constrained imports.

Sectors such as manufacturing and transport, which rely heavily on diesel and would have enjoyed the huge discounts, but are unable to take advantage owing to the slowed down activities.

The Kenya Association of Manufacturers noted industries are grappling with reduced manufacturing capacity, due to lack of essential inputs.

Following the disruption of global supply chains, local manufactures are experiencing challenges in diminishing stock, constraints to fulfil orders, high cost of raw materials as the cost of transport and finished products rise.

Transporters too are no longer doing brisk business as disruptions in the supply chain mean taking longer to receive cargo. Public service vehicles, too, have to contend with reduced human traffic as people opt to stay at home. Airlines are bleeding as they ground numerous flights instead of taking advantage of the low fuel price regime.

Local airlines, too, are grappling with reduced traffic in local and international flights. The shilling has weakened as tourism and horticulture - the major foreign exchange earners - suffer major losses.

Forex traders have attributed the drop to concerns about the potential drop of hard currency inflows as these sectors feel the impact of coronavirus.

One trader in a Reuters report noted that “the local clients are on the same page with global clients... Everyone wants cash and they want that cash in dollars.”

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