Fall in crude price signals more relief at the pump in January

Crude oil price continued on its downward slide to touch a 15-month low of $53 a barrel, raising the prospect of an even larger cut in petroleum pump prices in the New Year.

The Energy Regulatory Commission last week cut the cost of a litre of petrol in Nairobi by Sh4.57 to Sh113.54, that of diesel by 55 cents to Sh112.28 and kerosene by Sh6.61 to Sh105.22 in line with November pricing of crude when the downward slide began in earnest.

The price cuts were based on the 17 percent drop in the price of crude from $82 a barrel in October to $68 in November — taking into account the 30-45 day lag between placement of import orders and delivery of the commodity to the Port of Mombasa.

By close of business Thursday, the price of crude had dropped by a further 22 percent from the November peg, meaning motorists can only expect another significant price cut come the next review in mid-January.

The fall in crude oil price also bodes well for Kenya’s inflation outlook and eases the pressure on the shilling, which has recently shown signs of volatility.

Petroleum products account for about 16 percent of Kenya’s import bill, and thus are a significant driver of dollar demand in the domestic market.

Changes in pump prices in turn significantly affect the cost of goods, being a key determinant of the cost of transport.

“Looking forward, overall inflation is expected to remain within the target range in the near term, mainly due to expected lower food prices reflecting favourable weather conditions and the decline in international oil prices,” the Central Bank of Kenya said at the end of its most recent Monetary Policy Committee meeting on November 27.

Kenyan motorists are, however, unable to bank the full benefit of a fall in crude prices because the country imports refined petroleum products after closing its only refinery in 2013.

The sellers load on additional costs, including that of refining the product, and relative higher transport charges of moving the refined product in smaller ships as opposed to the large tankers that transport crude.

Taxes, oil marketer margins and levies also play a part in the high price of petrol in the country, accounting for 53 percent of the price of a litre of petrol in Nairobi.

As a result, the 17 percent fall in crude prices ahead of the December review yielded only a 3.9 percent fall in the price of petrol for the final consumer at the pump.

The pump price cut in December was also dampened by a deprecating shilling, which moved from 101.16 to 102.44 against the dollar between October and November.

The currency has, however, started clawing back some of the ground, trading at an average of 101.50 in the interbank market Thursday.