Crude prices have dropped by 22.5 percent since mid-June, setting the stage for reduced pressure on local pump prices.
Oil prices have fallen to an average of $95 a barrel—level last seen ahead of Russia’s invasion of Ukraine, as fears of an impending global recession grip commodity markets and batter forecasts for demand.
This looks set to ease pressure on diesel, petrol and kerosene prices, whose rally in recent months has partly led to inflation trading at multi-year highs of 8.3 percent.
The drop would also come in a period when the International Monetary Fund (IMF) has asked Kenya to drop the fuel subsidy programme by October, exposing motorists to a sharp rise in pump prices.
Kenya has since April last year spent an average of Sh7.65 billion monthly to subsidise diesel, super petrol and kerosene, highlighting the adverse impact of the fuel stabilisation programme on the country’s revenues.
Without the cushion, petrol prices would have jumped to Sh209.70 per litre from July 15, while diesel would be Sh193.70 in Nairobi, according to the Energy and Petroleum Regulatory Authority (Epra). However, the agency kept prices at Sh159.20 and Sh193.70 respectively.
These prices are based on the June average crude cost of $104.4 per barrel, a pointer that Kenya looks set to benefit from the current lower oil prices in the monthly review due on September 14. Brent, the international benchmark, hit $95.70 a barrel on Wednesday.
It closed at $96.84 on February 23, the day before Russia invaded Ukraine. The war caused prices to soar earlier this year, with both Brent briefly trading above $130 as western countries retaliated by imposing sanctions on Russia, one of the world’s biggest exporters.
But recessionary jitters and the prospect of the US Federal Reserve stifling growth with more aggressive rises in interest rates have since called a halt to the rally.
In Kenya, the costs of energy and transport have a significant weighting in the basket of goods and services that is used to measure inflation in the country. Producers of services such as electricity and manufactured goods factor in the higher cost of petroleum on their product pricing.
A majority of households rely on kerosene and LPG for lighting and cooking, making crude price a key determinant of the rate of inflation.
The economy also uses diesel for transportation, power generation and running of agricultural machinery such as tractors, with a direct impact on the cost of farm produce.