FUEL PRICES

Saudi oil crisis to hit Kenya in biggest global disruption

The Saturday attack in Saudi Arabia oil installations likely to affect petroleum prices

In Summary
  • The impact is being felt more heavily in contracts for near-term delivery than further down the curve.
  • Experts say the Saudi effects are likely to be felt in the next two months with likeliness of prices going up.
A fuel tanker offloads petrol at a petrol station in Mombasa/File
A fuel tanker offloads petrol at a petrol station in Mombasa/File

Kenyans are staring at high fuel prices in the short-term to December as the world comes to terms with the Saturday attack on key oil installations in Saudi Arabia.

The drone attack on Saudi's two major oil facilities is reported to have knocked out five per cent of the global oil production, leading to a price surge on crude which on Monday rose by at least 19 per cent.

Kenya orders its products a month earlier which means the current global prices will reflect on the next two to three months final pump prices, even as super petrol and diesel prices increased in Saturday's Energy and Petroleum Regulatory Authority (EPRA) monthly review.

 
 

The attack on Aramco is estimated to have interrupted 5.7 million barrels a day production, the single biggest sudden disruption in history.

“Global oil prices are feeling the impact of the drone attack. Because the loss of oil is sudden, the impact is being felt more heavily in contracts for near-term delivery than further down the curve,” a Bloomberg report noted yesterday.

A barrel of Brent was quoted at an average $65.43(Sh6,789) on Monday up from $60.25(Sh6,251) last week.

“There will be an upward revision once imports (oil) land at the port (Mombasa). In the short term there will be a significant increase in prices. Prices should however be flat on a twelve-month basis,” financial risk expert-Mihr Thakar told the Star.

Independent petroleum industry analyst Kevin Adundo, formerly of the Petroleum Institute of East Africa(PIEA), said the impact is likely to be felt after two to three months. 

"We bring in refined products. The people buying crude right now will get it at a higher price so if you factor in the refining costs and the period before the products reach Kenya, it might take a few months before we feel the impact of Saudi Arabia," Adundo said, "Give it two to three months."

Petroleum Focus Consultants yesterday noted prices have already shot up 10 per cent from about US$60 to US$ 66  per barrel since yesterday after after the attack.

 
 

"This will definitely trickle down to Kenya pump prices in November. If the Saudi oil  facilities damages are severe and the outages last longer,  prices will definitely firm up high," said George Wachira, Director Petroleum Focus Consultants.

"Replacing  about 5.0 million barrels per day of lost production is not immediately an easy call , but it all depends on extent of damages  and how long it will take to repair," he added.

This comes amid a staggering shilling against the US dollar, which affects the cost of oil imports. The Shilling weakened against the greenback yesterday trading at an average 103.91 from 103.71 last Friday.

On Saturday, EPRA in its monthly review raised fuel prices with super petrol and diesel going up by Sh0.28 per litre and Sh2.44 per litre respectively.

The two commodities are now retailing at Sh112.81 and Sh103.04 per litre respectively, a price that remains up to mid next month.

The price of kerosene however dropped by Sh3.31 per litre in Nairobi to retail at Sh100. Pump prices vary on proximity to the port with the furthest point incurring the highest price.

The increase was up from Sh112.53 and Sh100.60 for petrol and diesel in August. A litre of kerosene was however retailing at Sh103.95.

An increase in petrol prices is likely to spike transport costs while diesel, which is heavily used in farms and manufacturing could add up to the cost of production, which traditionally is passed to consumers.

"We are currently weighing to see the impact the prices will have on our revenues but definitely if the prices go up we are likely to pass the cost to the consumer. There must be business sense to the operators,"  Matatu Owners Association Chairman Simon Kimutai told the Star on phone.

Fuel prices are a major competent of inflation which fell to five percent in August, down from 6.27 in July.

The final pump prices are inclusive of eight per cent (8%) Value Added Tax (VAT) in line with the provisions of the Finance Act 2018 and the revised rates for excise duty adjusted for inflation.

The Saudi attack is considered to be the biggest interruption in oil production after the 1978-1979 Iranian revolution, which affected a 5.6 million barrels a day production.