Crude oil futures lost over 10 per cent in 2023 in a volatile year of trading and reported their biggest annual drop since 2020,a trend that has extended into 2024, with prices closing the first trading session of 2024 at 76.87 per barrel.
This, as expectations for fed rate cuts continue and on easing concerns that tension in the Red Sea, which saw global shipping line re-route vessels to longer voyages, will disrupt supplies.
In December, whose stocks Kenya’s Energy and Petroleum Regulatory Authority will use to determine prices for January15-February 14, murban crude averaged $73.91 per barrel, a drop from the previous month.
EPRA in December announced a Sh5 drop in the pump price of a litre of super petrol, Sh2 on diesel and Sh4.01 on a litre of kerosene, even as it quoted crude prices at a much higher price of $93.92 for November imports, compared to the then average price of $76 per barrel, denying consumers full benefits.
With a further drop in December, consumers could benefit from even lower prices if the regulator is to pass the benefits, a move that could boost economic activities mainly in the transport, manufacturing and agricultural sectors.
The disruption in the Red Sea started last month after attacks by Iran-backed Houthi rebels in Yemen, on ships travelling to Israel.
This saw shipping lines divert their vessels away from the Red Sea avoiding the Suez Canal which is a key route for voyages to Mombasa and the East African coastline, but he move is yet to impact on supplies and costs.
Israel's war on Gaza was also feared it could affect global fuel supplies but the impact is yet to be felt and instead, oil producing countries have been cutting output to try and stabilise prices which have been going down.
“A wider war in the Middle East with involvement of the US may initially uplift oil prices, but depending on the size of the conflict, it could also turn into a demand destroyer,” data analysts and financial analysts, Mihr Thakar, told the Star.
Kenya Ports Authority managing director William Ruto has since affirmed that the Port of Mombasa is not affected.
“I want to thank the shipping lines that are operating in this port (Mombasa) because they have given us confidence and they have assured us that their traffic will continue growing,” Ruto said.
There has been a significant drop in global prices, but Kenyans feel they are yet to get the full benefits as high taxes, including a return to 16 per cent VAT from eight per cent last year, continue to keep prices up.
While landed costs for super petrol, diesel and kerosene was Sh111.05, Sh131.72 and Sh120.82, respectively, in November, taxes, Oil Marketing Companies’ margins, distribution and storage charges saw pump prices remain high.
A litre of petrol is currently retailing at Sh212.36 where Sh79.09 is taxes to the government, with OMCs taking Sh12.3 while Sh4.04 goes to distribution and storage, among other charges.
On Sh201.47 per litre of diesel, Sh67.77 is taxes to the government while Sh62.17 on the Sh199.05 litre of kerosene goes to the state as taxes, where fuel products have up to nine different levies.
The Consumers Federation of Kenya has been calling on the government to address the numerous taxes and levies on fuel products, to ensure consumers benefit when global prices are low.
In December, the price of OPEC basket of thirteen crudes averaged $78 a barrel with the highest being $81.82, according to OPEC Secretariat calculations.
Analysts at Goldman Sachs expect brent to range between $70 and $90 a barrel in 2024 based on flexible OPEC+ supply, a low risk of recession and opportunistic strategic petroleum reserve purchases by China and the US.
EPRA has been pegging the higher fuel prices, against a drop in global prices, on the weakening shilling to the US dollar, with a dollar scarcity pushing the government into the government-to-government deal with the gulf.
Petroleum products imports account for 30 per cent of Kenya's total dollar requirements.
The import bill of petroleum products rose to Sh348.3 billion in 2021 from Sh209.1 billion in 2020.
According to the Petroleum Institute of East Africa (PIEA), the government-to-government deal has helped ensure stability in the supply of products in Kenya, while easing pressure on the dollar market.
The OPEC Secretariat announced an additional “voluntary cuts”, on production to the total of 2.2 million barrels per day, which it said is aimed at “supporting the stability and balance of oil markets.”
“These voluntary cuts are calculated from the 2024 required production level and are in addition to the voluntary cuts previously announced in April 2023 and later extended until the end of 2024,” it said in a statement.
