Crude oil prices to send cost of petrol soaring

This, together with rising appetite for oil from China has in part contributed to surge in crude prices.

The fall in the dollar has also nudged traders to put their money in oil for protection against possible inflation—resulting in increased demand for the commodity on high speculation.

The effects of the rise in petroleum products could spread throughout Kenya’s economy.

Households will have to part with more money to meet their fuel expenses, a move that will see families left with less to spend on other products such as airtime and beer.

This is crucial given that most producers have been struggling to push their products in the market place due to the country’s soft economy.

Producers themselves could be pushed to increase their product prices that are often linked to the cost of petrol.

Public transport users will also be dealt a blow as operators are expected to increase fares as they pass on the additional expenses to consumers.

As a result, energy costs are set to join expensive food as drivers of the cost of living or inflation.

Already, Kenyans have seen the power bills soar by 60 per cent since March on rising fuel costs charges— a varying item on the bills that is linked to the amount of power on the national grid that is generated from the expensive fuel driven power generators.

Rising crude oil prices look set to drive electricity prices upwards at a time when the country is tapping deeper into the fuel generator to compensate for the drop in hydro- power capacity.

But the sharp rise in crude prices is set to be quietly appreciated in the local oil market.

The marketers tend to make bigger profit margins when crude oil prices are rising through selling some old cheaper stocks at higher prices.

The reverse happens when the prices start falling as it happened in the second half of last year.

“The effects of sharp drop in crude prices resulted in severely reduced margins, a result of holding expensive stocks at a time of falling prices,” said Total Kenya in May while announcing a Sh109 loss for the three months to March, compared to a profit of Sh141 in the same period a year earlier.

Oil prices hit an all-time high of almost $150 per barrel in July 2008 before the global financial crisis brought petroleum prices down tumbling to $40 in December that year but then bounced sharply back up.