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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