Falling crude oil prices drive demand for fuel

By Njiraini Muchira

The steady decline of crude oil prices in the international market is pushing up local demand, as pump prices take a downward spiral.

On Tuesday, Ministry of Energy opened bids for importation of petroleum products for the next two months that showed demand had gone up by 16 per cent.

During the two months, the country will be seeking to import 340,000 tonnes of oil products, which is 16 per cent more than the previous order.

The country intends to import 109,095 tonnes of jet fuel, 90,282 tonnes of gasoline, and 141,634 tonnes of gasoil.

Fluctuating demand

Kenya’s consumption of oil products stands at 4m tonnes a year.

“Demand tends to fluctuate depending on international prices. Now that they have dropped, we are witnessing rising demand,” said Joseph Wafula, senior petroleum economist at the Ministry of Energy.

He added the first consignment is expected between August 19 and 21. The second should be delivered between September 28 and 30.

This comes only a few days after the Kenya Petroleum Refinery Ltd (KPRL), which has just transformed from a toll to a merchant refinery, imported 82,000 tonnes of crude oil.

“This is the same grade of crude oil being processed at KPRL. It will be pumped to our Changamwe plant for processing,” said KPRL Chief Executive Brij Mohan Bansal.

In recent months, the prices of crude at the international market have been on a downward trend, with the price of Free On Board Murban crude oil last month standing at $97.35 (Sh8,100) per barrel, a decrease of 11.98 per cent from $110.60 (Sh9,200) per barrel in May.

The decline has translated to a massive drop in local prices after the Energy Regulatory Commission reduced the price of super petrol in Nairobi by Sh9.21 to retail at Sh108.46. Regular petrol went down by Sh11.70 per litre to sell at 105.76. Diesel is retailing at 97.50 after a cut of Sh8.08.

Over the past year, high crude oil prices left a big hole in the books of the Kenya Revenue Authority as petroleum taxes recorded a decline of 4.1 per cent to Sh66.2 billion from Sh69 billion the previous year.

Import bill

The high prices have also caused the petroleum import bill to balloon, forcing the country to spend 25 per cent of the gross domestic product.

The Economic Survey 2012 show the import bill for petroleum products rose to Sh200.8 billion last year, from Sh166.4 billion theprevious year.