Kenya fuel prices: Tension as global oil shock reaches the pump

Kenya's next fuel-price review is due on October 15, and the timing could be uncomfortable for motorists.

The Energy and Petroleum Regulatory Authority's current price cycle runs from September 15 to October 14.

In Nairobi, the maximum price is Sh214.03 per litre for Super Petrol, Sh217.86 for diesel and Sh191.38 for kerosene.

Those prices have remained unchanged even as some underlying import costs have moved sharply.

The new pressure is coming from the international oil market.

Crude crosses $100

Brent, the international benchmark used in global oil pricing, has traded above $100 a barrel for roughly a month, reaching about $107-108 this week as disruption linked to the Middle East conflict raised concerns over crude and shipping supplies.

Brent settled at $102.31 a barrel on October 1, according to Reuters.

For Kenya, higher crude prices eventually feed into the cost of importing petroleum products.

The country relies heavily on imported fuel, meaning movements in the international market can show up in the domestic pricing formula after the relevant pricing period.

How EPRA sets the pump price

The price on a Kenyan forecourt is not simply the world oil price converted into shillings.

EPRA's regulated formula starts with the landed cost of imported petroleum, then adds expenses such as jetty handling, storage, transportation, financing, wholesale and retail margins, applicable taxes and VAT.

That means a jump in crude prices does not automatically produce an identical jump at the pump.

Exchange rates also matter because imported petroleum is priced in foreign currency.

Shipping costs, product-specific import prices and the other regulated components feed into the final calculation.

The current prices

The September review illustrates how the system works.

EPRA said average landed cost for imported Super Petrol actually fell 7.87 per cent, from $948.92 to $874.26 per cubic metre between July and August.

But diesel's landed cost rose 11.86 per cent, while kerosene increased 9.71 per cent. EPRA nevertheless kept the maximum retail prices unchanged for the September 15 - October 14 period.

The current international picture is therefore being formed after that review.

Diesel is vital

Diesel sits deep in Kenya's economy.

It powers trucks, buses, agricultural machinery, generators, industrial equipment and much of the country's goods-distribution network.

When diesel gets more expensive, the effect can move beyond motorists to freight, food distribution, manufacturing and public transport.

Kenya's September inflation rate rose to 6.8 per cent, from 6.6 per cent in August, while transport inflation reached 15.6 per cent year on year.

Food inflation was 9.5 per cent.

A prolonged oil shock could therefore add another layer of pressure to households and businesses already facing higher transport-related costs.

What happens on October 15?

EPRA will calculate a new set of maximum pump prices using the data for the relevant pricing period and publish them for the next month.

The present prices are therefore not forecasts of what motorists will pay after October 14.

What happens next will depend on the direction of global petroleum prices, the exchange rate and Kenya's imported-product costs during the pricing window.