Markets & Finance

Relief for motorists as petrol price drops to six-year low

Fuel

The price of petrol has dropped to a six-year low of Sh80.71 per litre in Nairobi, offering a big relief to motorists. Photo/FILE

The price of petrol has dropped to a six-year low of Sh80.71 per litre in Nairobi, offering a big relief to motorists.

Petrol will retail at Sh4.87 per litre less for the next one month, the Energy Regulatory Commission (ERC) announced yesterday.
This is the sixth drop in a row in the ERC’s monthly reviews and the lowest pump price since December 2010 when the energy regulator started controlling the cost of fuel.

But the price of diesel, used for powering industries, trucks and buses, is up Sh0.53 per litre to Sh66.23 in the capital city.

The price of kerosene, mostly used by low-income households for lighting and powering cook stoves, also increased Sh1.81 per litre to Sh43.96.

The ERC attributed the variation in the price movements of petrol, diesel and kerosene to different import costs of the commodities.
“The international prices of petrol were lower when we procured the consignment in February, hence the drop,” ERC acting director of Petroleum Edward Kinyua said on the phone.

READ: Falling fuel costs lower inflation

“The prices of diesel and kerosene were marginally up during that period, hence the increases,” Mr Kinyua added.

There is a lag of between 30 and 45 days between the placing of supply orders and the actual delivery of consignments at the Mombasa port, meaning local prices do not immediately reflect global market trends, but are at least one month behind.

The cost of petrol import dropped 11.9 per cent in the review period, while that of diesel rose by 3.7 per cent.
Kenya buys refined petroleum products after its sole refinery, the Kenya Petroleum Refineries Ltd in Mombasa, was shut down in September 2013.

The country bought its current petroleum stocks in February when crude prices stood at $33 a barrel, up from $29.9 a month earlier.
Crude oil prices shot to $38.2 in March, the period which the country bought the consignment to be reviewed next month for consumption, signalling a likely price increase.

Faulted ERC

A barrel is equivalent of 159 litres of petroleum. Global oil prices are now about $40 a barrel.

Consumers and the World Bank have in the recent past faulted the ERC’s monthly pricing of petroleum, arguing that price controls have denied consumers the full benefits of the plummeting crude prices. But the ERC has maintained that the import cost of refined petroleum varied from that of crude, hence the disparity.

The prices are also determined by forex exchange. The shilling has held steady against the US dollar at Sh101 since the beginning of the year.
The ERC started controlling fuel prices six years ago to shield customers from wild swings in local prices that were often out of synch with global prices.

Also read: Petrol consumption jumps on lower prices

Petroleum prices have a bearing on inflation because they affect operation and production costs of manufacturing, agriculture and transport.
Producers, who rely on diesel, often respond to the cost movements by adjusting retail prices of their products and services.

The regulator says it uses Platts — a US-based source of global oil information — to benchmark local prices for refined petroleum as opposed to crude prices.

Fuel attracts multiple tax charges which consumers pay for at the retail pump.
Excise duty on petrol is Sh19.89 a litre while the levy on diesel is Sh10.3 per litre. Kerosene is zero-rated. Petrol and diesel also attract a road levy charge of Sh12 a litre that is not applied to kerosene.

Added to the fuel charges are profit margins for oil marketers, which the ERC has set at Sh7 a litre for wholesale and Sh3.89 for retail.
Oil marketers have been pushing for higher margins to protect their businesses on the back of rising inflation and interest rates.
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