Economy

Why pump prices will drop in January

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Customer attendant at Rubis Petroleum Station on Koinange Street Nairobi on Wednesday, December 14, 2022. PHOTO | DENNIS ONSONGO | NMG

Pump prices are headed for a drop in the New Year following the continued easing of the global costs of crude oil promising some relief for Kenyan consumers who are coming out of the toughest year since Kenya started regulating fuel prices.

Crude oil prices – which is one of the key factors in the cost of refined fuel that Kenya imports— have dropped by over 20 percent with the fuel cargo imported last month priced at $92.45 per barrel from $117.53 in August.

Prices of super, diesel and kerosene hit record highs this year mainly due to supply disruptions caused by Russia’s invasion of Ukraine in January.

Motorists are paying Sh162 per litre of diesel, Sh177.30 per litre of super while kerosene is retailing at Sh145 per litre.

Also read: State denies petrol motorists Sh8.5 drop in pump prices

Global costs of crude that significantly determine the cost of the refined fuel that Kenyan imports have been falling with leading banks like Goldman Sachs and JP Morgan forecasting the drop to continue in the New Year.

Goldman Sachs and JP Morgan have projected crude prices at between $90 and $95 per barrel in early 2023, down from $110 and $98 per barrel respectively next year.

“We now forecast a $8 lower 2023 average price, on the grounds that Russian production will fully normalize to pre-war levels by mid-2023. Despite more pessimistic balances over the next few months, we expect Brent to average $90/bbl in 2023 and $98/bbl in 2024, JP Morgan said in a note.

The fall is linked to a depressed in demand from China following the reintroduction of Coronavirus restrictions and European economies slowing down due to the high cost of energy and rising interest rates from banks.

An analysis of the pricing schedule from the Energy and Petroleum Regulatory Authority (Epra) shows a litre of diesel has risen by Sh51.40 since December last year while that of super jumped by Sh47.58 in the period highlighting the impact of the Russian-Ukraine war.

Russia’s invasion of Ukraine sent prices of crude oil past the $100 per barrel mark for the first time since 2014 amid concerns about a shortfall in global supplies from Russia— one of the biggest suppliers of the commodity.

Consumers could however be paying Sh181.39 for a litre of diesel this month were it not for the subsidy that however denied users of super a drop of Sh8.54 less per litre of the commodity.

The subsidy was started in April last year to cushion Kenyans and also tame inflation given the critical role of diesel in running the economy.

But the global crude prices that hit a record high of $117.53 per barrel in August have eased over the past few months with Kenya’s last fuel cargo that was imported last month costing $92.45 per barrel.

Epra says that Kenyans are likely to feel the relief from early next year, barring unforeseen events that could tilt the continued drop in crude oil prices globally.

“We have a lag of two months in pricing and probably the impact will be felt in January,” Epra Director-General Daniel Kiptoo said.

The drop in crude prices has also eased the pain on households and businesses after the prices of cooking gas dropped by up to Sh150 from July. The drop was also partly driven by the halving of the Value Added Tax on cooking gas to eight percent in July from the 16 percent imposed last year.

Prices of the 13-kilogramme gas dropped to Sh2,900 from Sh3,350 while the six-kilogramme commodity fell to Sh1, 250 from Sh1,550 in the wake of a combination of the halving of the VAT and global drop in crude prices.

The government does not currently regulate prices of cooking gas, underscoring the significance of the global drop in crude prices that have oil dealers pass the price reductions to consumers.

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