Motorists and households in Kenya are staring at a possible increase in fuel prices in coming weeks, as global crude touch a three-week high on supply tightness.
Both crude oil benchmark contracts have been on an upward trend this month, rising to $101.67 (Sh 12,188) per barrel yesterday, from $96 (Sh 11,508).
This is on the back of increasing supply constraints occasioned by a cut in output by major producers, and the partial shutdown of a US. refinery.
Organization of the Petroleum Exporting Countries (OPEC) have also used it to correct prices.
With the reopening of key economies in post-Covid era, analysts now predict a further jump to the $114 per barrel levels last seen in March, as demand threatens to outpace supply.
Uncertainty around the Kenyan government’s fuel subsidy, as the country transitions into a new regime, also sets consumers for a possible price hike.
In the current pump prices running until September 14, the government chose to continue utilising the subsidy kitty to cushion consumers.
The kitty has so far consumed more than Sh101.8 billion, which surpasses the Sh100 billion that had been allocated for the purpose.
Last month, statehouse announced a Sh16.675 billion subsidy to retain fuel prices.
Until September 14, a litre Petrol will retail at Sh159.12, Kerosene at Sh127.9 4 and diesel Sh140.00.
Without the subsidy, prices would have increased to Sh214.13 for diesel, Sh206.17 for petrol and Sh202.11 for Kerosene.
The National Treasury has however indicated the programme is unsustainable.
According to CS Ukur Yatani, the fuel subsidies are inefficient and often lead to misallocation of resources and crowding out of public spending on productive sectors.
"For this reason, a gradual adjustment in domestic fuel prices would be necessary in order to progressively eliminate the need for a fuel subsidy within the next financial year," Yatani said in a recent statement.
He added that the cost of fuel subsidy surpassing its allocation in the national budget was likely to escalate public debt to unsustainable levels, hence disrupting the government's plans.
The global crude prices and the weak shilling against the US dollar remain a tough balancing act, even as the International Monetary Fund (IMF) mounts pressure on the government to do away with the subsidy programme.
This is part of a Sh270 billion budgetary support loan.
During the announcement of the current prices, the Energy and Petroleum Regulatory Authority (EPRA) noted that the landed cost of imported super petrol had increased by 2.99 per cent, from $1,042.85 (Sh124,975) per cubic metre in June to $1,740.01 (Sh208,522) in July.
For diesel, the cost increased by 8.22 per cent from $1,019.29 (Sh122,151) per cubic metre to $1,103.03 (Sh132,187) per cubic metre.
That of kerosene went up by 14.90 per cent to $1,111.53 (Sh133,205) per cubic from $967.42 (Sh115,935).
Over the same period, importers also incurred heavy costs on a weak shilling which depreciated by 1.17 per cent to 119.92 per US dollar, compared to an average trading rate of 118.53 the previous month.
The shilling has remained at the 119 mark and nearly breached the 120 mark this week.
An increase in fuel prices will hit hard households as it translates to a jump in transport costs, commodity and food prices, among other implications.
This will add pain to the country’s population, which is currently struggling with a high cost of living.
Annual inflation hit 8.3 per cent in July, the highest reading since September 2017, a year that the country witnessed a nullified elections.
According to the Kenya National Bureau of Statistics (KNBS), the rise in inflation was mainly due to increase in prices of commodities under food and non-alcoholic beverages (15.3 per cent), transport (7.0 per cent) and housing, water, electricity, gas and other fuels (5.6 per cent) between July 2021 and July 2022.
These three divisions account for over 57 per cent of the weights of the 13 broad categories used to measure the cost of living.
On Tuesday, policy research institute–Tegemeo Institute of Agricultural Policy and Development warned food prices are expected to increase in October if the fuel subsidy comes to an end.
Timothy Njagi, a senior researcher at the institute said: “Between now and October, prices of food, especially maize, are likely to stabilise due to the little harvest from the South Rift. But the key determinant of the cost of food will be fuel. The end of the subsidy will have a ripple effect.”
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