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Oil dealers face funding pressure on high fuel prices

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Oil marketers face greater working capital requirements in the wake of a combination of a spike in global fuel prices and the weakening of the shilling. PHOTO | POOL

Oil marketers face greater working capital requirements in the wake of a combination of a spike in global fuel prices and the weakening of the shilling.

The costs of shipping in petrol, diesel and kerosene rose by up to 17.3 percent per cubic metre between the start of the year and last month, while the shilling maintained its drop against the dollar, setting up the dealers for increased cash demands to procure and hold stocks.

Landed cost for petrol rose the biggest in the eight months at 17.3 percent to $774.67 a cubic metre while diesel rose 1.3 percent to $789.89 per cubic metre in the same period. That of kerosene jumped 6.74 percent to $827.26.

A sharply depreciating shilling against the dollar has added to the woes of dealers through making the imports costlier.

The shilling has depreciated 15 percent to 145.4 units against the greenback between January and the end of last month.

Weakening shilling

Oil marketers had early in the year disclosed increased borrowings to fund operations, a trend is set to grow in the wake of the continued jump in global costs of refined fuel and weakening shilling.

“In the period there was also higher utilisation of the local credit facilities to meet working capital requirements and higher borrowing rates in some countries that further contributed to the increase in finance expense,” Vivo Energy said in its half-year report to June.

TotalEnergies —the second biggest oil marketer in Kenya— had disclosed that it took Sh14.5 billion worth of short-term loans in the year ended December 2022 as working capital requirements increased sharply on the back of higher fuel prices.

The company disclosed that the finance costs significantly contributed to the 10.7 percent dip in net profit to Sh2.4 billion in the review period.

Small oil dealers had also warned being forced to borrow to fund operations given they are not as well capitalised as the multinationals.

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