Recently, Kenyan energy regulators reviewed pump prices downwards in two consecutive months to understandably reflect low global prices that had persisted through to the end of 2023.
However, since the beginning of this year, the marker Brent Crude oil prices have increased from about $77 per barrel to around $83, which is contrary to general expectations of low oil prices in 2024.
Positive signs of economic recovery across the world and in particular the USA and China, and a rapid economic growth in India, are prompting optimism in oil markets, with prospects for increased oil demands and strengthened prices.
However, it is the ongoing spread of regional chaos associated with the Israeli/Palestinian conflict in Gaza that is rattling oil markets, causing prices to increase as supply chains are threatened with disruptions.
Last week, an oil tanker was set ablaze in the Red Sea passage by a drone fired from Yemen. But targeting of shipping in the Red Sea by Houthis has been selective, with ships linked to Russia, China and even Saudi Arabia spared.
Russia and China are members of a tripartite geopolitical cooperation which includes Iran, while Saudis recently reestablished diplomatic links with Iran.
The chaos associated with the Gazan war is a proxy game between Iran and countries sympathetic with Israel. The drone attack on a US military camp in Jordan that killed three American servicemen and wounded many heralds an escalation of wider proxy disturbances in the Middle East, with the potential for pushing up oil prices.
When a US president vows to avenge killed and injured Americans, consequences could be far-reaching. Middle East instability aside, the world remains generally oversupplied with oil, a fact that will continue to favour low oil prices, unless critical supply chains are directly impacted by the ongoing chaos.
However, from experience, if the Gaza crisis becomes a never-ending conflict, as is happening in Ukraine, oil markets and prices will adjust to a new normal, as has always happened with globally integrated supply chains.
Back to Kenya, apart from the Gaza-related instability, the other main variable that will in the short term continue to influence oil pump prices is the shilling exchange rate, which is yet to show signs of stabilising. This plus the effect of the ongoing hardening of global oil prices has the potential for higher pump prices in the immediate months.
