How petrol price in Kenya compares with that of crude oil
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
16 April 2023
Does the price of
petrol in Kenya correspond fairly with the price of crude oil in the
international markets? This is a question that comes up every middle of
the month when the Energy and Petroleum Regulatory Authority (EPRA)
announces the new maximum retail pump prices of the product.
My position has
always been that it is wrong to compare the monthly movement of our
retail pump prices with that of crude oil. The reason is simply that we
do not import crude oil. Market prices are determined by the forces of
supply and demand; not by production costs as many people assume! The
market for crude oil is totally different from that of refined products.
Nevertheless, it
would be interesting to look at the long-term trend. I wrote about
petroleum prices almost 20 years ago – in November 2004. At that time,
there was no price control of petrol in Kenya and the dealers were free
to set any amount they wished. The retail price was about Sh70 per lite
while crude oil was trading at about US$40 in the world markets.
As at the time of
writing this present article – Wednesday, April 12, 2023, the retail
price in Kenya is about Sh179 while the average world market price of
crude over the last one month was US$82. It is tempting to simply claim
that our market rate has gone up two and half times (Sh179 divided by
Sh70 = 2.56) while that of crude has just doubled ($82 divided by $40 =
2.05); hence conclude that our local price has gone up faster. But that
would be grossly inaccurate.
The problem with such
a calculation is that it has ignored the fluctuations in the foreign
exchange rate. In November 2004, the one US dollar exchanged for KSh82.
Therefore, one burel of crude oil was going for US$40 = KSh3,280.
Today, one US dollar
exchanges for KSh134; therefore, one burel oil crude oil is selling for
about US$82 = Sh10,906. So, over the last 19 years, the world market
price of crude oil (in Kenyan Shillings) has gone up by a factor of
3.325 (Sh10,906 divided by Sh3,280).
That is, the price of
crude oil has gone up by a factor of 3.3 while our local pump prices
have only increased 2.56 times. In other words, compared to the cost of
crude, we are paying less for refined petrol now than we were paying in
2004!
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