Expect no big relief at pumps despite global oil market crash

Kenyan officials have ruled out direct relief to consumer despite last week’s historic crude oil market crash that saw the futures benchmarks nosedive to the negative territory.

On Monday last week, the West Texas Intermediate (WTI) price sank to a low of negative $37 per barrel, raising hopes of deep cuts in next month’s retail price to be released by the energy sector regulator.

Pump prices are expected to continue falling in subsequent months but that will be in proportion to movements in Brent crude benchmark, which the Energy and Petroleum Regulatory Authority uses fix its monthly rates as opposed to the WTI, officials have said.

“The WTI is a US pricing mechanism and is based on oil speculations. It has nothing specific to do with how we import and price for oil here. If you check the Platts, you get the real price from dealers who handle the physical oil,” said Petroleum PS Andrew Kamau.

Kenya specifically uses Platts quote for kerosene while Gasoil Arab Gulf and Singapore Platts are used for petrol in determining imports through the Open Tender System (OTS) run by the Petroleum Department.

At the moment, the Brent crude benchmark has also been on a downward spiral, remaining below $20 a barrel last week.

Under the OTS, however, Kenya has a one-month lag in the importation of fuel, which means the May 14 fuel prices will be determined by the March and April crude prices hence there is no immediate relationship with what happens in the international markets.

After shutting its refinery in Mombasa back in 2013, Kenya is a net importer of fuel and the commodity is subject to seven levies and an excise tax, which added to other costs like distribution and storage makes the prices per litre far from having any direct relationship with the international prices.

The pump prices are, however, expected to fall further in the pricing set for mid-May even as crude oil gained ground in the last trading day on Friday.

Brent crude gained 2.8 percent to trade at $21.93, climbing from the weeklong slump as the Covid-19 pandemic continued to destroy demand despite pledges of production cuts by producers.

Under a deal agreed between the Organisation of the Petroleum Exporting Countries and associated producers like Russia, a grouping known as Opec+, production cuts equal to 9.7 million barrels of oil per day are due to kick in from May.