Expect higher fuel pump prices as Russia-Ukraine conflict rages

Kenyans are staring at the possibility of fuel prices hitting record highs over the next two months unless the government continues to cushion consumers at the pump.

This is after crude oil prices jumped to the highest levels in more than a decade following Russia's invasion of Ukraine just over a week ago, which disrupted oil supplies in the region.

Russia is the third-largest oil producer in the world after the US and Saudi Arabia and the second largest exporter after Saudi Arabia, with the US consuming a huge proportion of the oil it produces.

Saudi Arabia's Murban crude oil, which forms a big chunk of the refined petroleum products imported to Kenya, was trading at $111.60 (Sh12,610) per barrel on Wednesday and further inched up to $119 (Sh13,447) per barrel on Thursday. 

Murban crude has steadily gone up following the crisis in Europe from $95 (Sh10,735 ) per barrel in mid-February to $100.70 (Sh11,379) in March before making the biggest single-day jump in the recent past to $111.60 (Sh12,610) on March 2.

The benchmark Brent Crude rose to $120 (Sh13,560) per barrel yesterday, the highest since 2011.

Analysts expect the situation to get dire in the coming days and weeks as the US and European governments place sanctions on Russia in a bid to exert pressure on President Vladimir Putin to withdraw his forces from Ukraine.

A Reuters report, citing energy experts, notes that “oil prices are likely to continue to climb – potentially beyond $130 (Sh14,690) per barrel”.

The high crude oil prices now might mean that when the Energy and Petroleum Regulatory Authority (Epra) announces the maximum prices that oil marketers can charge in March and April, the cost is likely to go up.

This is unless the government continues to use the petroleum stabilisation mechanism, whereby it pays the oil companies to keep pump prices stable.

The government has been doing this for the last year.

Prices have remained at the same levels for the last six months. While the pump prices are still high, they would have been higher were it not for the State's intervention.

According to Epra, super petrol, which currently retails at Sh129.72 per litre in Nairobi, is cheaper by Sh14.53.

In its computations, the regulator said in the absence of the subsidy, a litre of super petrol would be retailing at Sh144.25.

Consumers of diesel are the biggest beneficiaries of the subsidy, with the stabilised pump price being Sh110.60 a litre in the city against the actual price of Sh133.89, a difference of Sh23.29.

Kerosene has been subsidised by Sh15.88 per litre and would have retailed at Sh119.42 per litre against the current pump price of Sh103.54 per litre in Nairobi.

The money used to stabilise pump prices comes from the Petroleum Development Levy (PDL), which is funded by motorists, who pay Sh5.40 per litre of super petrol and diesel when fueling at the pump.

There are doubts as to how long the government can continue cushioning consumers.

The Petroleum Ministry has in the recent past said the collections through the PDL are too low to sustain the subsidy.

In recent submissions to the National Assembly’s Energy Committee, the ministry said collections through the levy average at about Sh2.2 billion per month, way below the Sh8 billion it has been spending to keep the prices stable every month.

The National Treasury in the Supplementary Budget tabled in Parliament early February allocated Sh25 billion for the programme, ensuring that it will continue to be in force for the next few months.