Oil Traders Clarify Reasons behind Hike in Fuel Prices
Oil Traders Clarify Reasons behind Hike in Fuel Prices
The government was justified in raising pump rates, according to the Petroleum Outlets Association of Kenya (POAK), especially when all contributing circumstances are taken into account. On Friday, September 15, POAK Chief Executive Officer John Njogu indicated that the price increases were inevitable because elements like the dollar exchange rate had demonstrably affected international trade.
Njogu emphasized that the Kenyan Shilling, which is now trading at about Ksh150 for one US Dollar, had a notable decline against the US Dollar in August 2023.”This has increased the cost of imported petroleum in Kenya. This means that Kenyan importers must pay more in shillings for imported oil, and drivers will undoubtedly pay more at the pump as a result.
Dollar Exchange Rate
The Kenyan government’s debt to Gulf states for postponed payments for imported oil became more expensive to service due to the weakening Shilling.
He explained that paying off foreign currency debt requires more Shillings, and in the case of Kenya, the government was forced to choose between collecting the late fees and requesting new imports. The local economy as a whole, particularly the inflation of petroleum goods, is affected by the weakness of the Kenyan Shilling. The price of domestic goods and services increases as imported goods and services become more expensive. The government ought to think about making policy changes to preserve a stable exchange rate, says POAK Chief Executive Officer.
Njogu also explained that the price for crude oil have significantly gone up at the international markets due to a number of factors, including the Russia-Ukraine war, supply chain disruptions, and increased demand.
“The price of crude oil is the main driver of fuel prices. Crude oil prices have been rising in recent months, and it’s obvious that the same may continue to happen in the foreseeable future,” Njogu stated.
The Russia-Ukraine war has disrupted oil supplies from Russia, which is a major oil producer. This has led to a tightening of the global oil market and higher prices.
Supply-Chain Breakdowns
Increased oil prices are also a result of supply chain disruptions. The COVID-19 outbreak had disrupted the world’s supply chain and is still making it more challenging for businesses to ship commodities like oil.The international oil price range for August 2023 as of today, September 15, 2023, is Ksh12,335.40 ($84) to Ksh12,867.00 ($87.62) per barrel.These costs have increased over the previous months, when the price of a barrel of crude oil was Ksh12,241.42 ($83.36).
Financial Act of 2023
It was noted that one of the factors contributing to the increase in fuel costs in August 2023 was a tax increase on petroleum products, specifically in the Finance Act 2023.Fuel economy is currently causing a financial panic that could result in an ineffective fuel delivery system. Due to the increased cost of transportation, this raises fuel prices.The price of fuel may also rise as a result of speculative trading on the oil market, according to POAK. Due of this, it is challenging for people to survive and for businesses to run.The International Energy Agency (IEA) anticipates that these elements will keep oil prices high in the near term.
According to the IEA, the average price of a barrel of Brent crude oil will be Ksh13,182.72 ($89.77) in the fourth quarter of 2023 and Ksh14,334.03 ($97.61) in the fourth quarter of 2024.The IEA also noted that the world economy is suffering as a result of the high oil prices. They are making it more difficult for businesses to run and for people to make ends meet by raising the price of food, transportation, and other necessities.
