Oil stocks under pressure on new VAT

Share prices of oil marketing companies have come under pressure in the last few days as the standoff on the cost of petroleum products and shortage escalate.

KenolKobil shares fell by 4.4 per cent in the last five days ending Wednesday and 9.7 per cent in the past one month. On Wednesday alone when the fuel shortage began, the share lost 2.7 per cent.

The Total Kenya share price fell by 3.4 per cent on Wednesday and was nearly one per cent down in the past five days. In the past month the firm’s share has fallen by 10.9 per cent.

“The fall in share prices of oil marketers has been caused by the current standoff on pump prices and also the expectation that retail demand will decline. People are considering their transport costs which implies lower demand in the short term,” said Renaldo D’Souza, a research analyst with Sterling Capital, an investment bank based in Nairobi.

The standoff on prices followed the imposition of a 16 per cent value added tax, which immediately raised pump prices.

In Nairobi, the petrol price rose to Sh127.80 from Sh112.2, diesel is retailing at Sh115.08 compared to Sh103.25 earlier, while kerosene is selling at Sh97.41, up from Sh85.73. Following the increase in prices, distributors of petroleum products failed to collect fuel for sale to stations causing the current shortage.

Mr D’Souza was optimistic that President Uhuru Kenyatta would sign the Bill postponing the increase of fuel prices by two years as proposed by Parliament last week. “Once the Bill is signed I expect the negative impact on the oil companies to fall because demand for the products will rise,” said Mr D’Souza.

The current rise in prices has affected not only road transport, where public service vehicles have raised fares, but also other sectors such as paint manufacturing and cereals milling.

The airline industry has also been affected with low-cost Jambojet, a subsidiary of Kenya Airways, saying it will be forced to push up its ticket prices.