Fuel Prices: International Oil Costs Impact Kenyan Consumers

Every middle of the month, motorists, matatu operators and business owners across Kenya wait for a single announcement from the Energy and Petroleum Regulatory Authority (EPRA). The monthly fuel price review determines the cost of driving, the price of transporting fresh produce to market and the overall direction of inflation.

Yet, when global crude oil prices rise or fall, local pump prices rarely move by the exact same proportion or at the exact same time. Understanding how international benchmarks like Brent crude travel through shipping routes, refineries, taxes and local pricing formulas explains why local fuel prices move the way they do.

As reported by People Daily Digital, the Central Bank of Kenya (CBK) tracks international crude oil price movements ahead of EPRA’s scheduled pricing adjustments. This tracking matters because imported energy forms a significant share of Kenya's overall import bill, directly influencing both domestic inflation and national demand for foreign exchange.

For an ordinary household, the price at the pump is not just about filling a fuel tank. A surge in diesel costs immediately pushes up matatu fares, increases the expense of running diesel-powered farm machinery and inflates the distribution costs of consumer goods, translating into higher supermarket receipts.

The Lag in the Pipeline

Kenya does not refine crude oil locally. Instead, the country imports refined petroleum products such as Super Petrol, Automotive Gasoil (diesel) and Dual Purpose Kerosene. This introduces a critical lag between international market developments and local pump prices.

The journey starts at global trading hubs where refined products are priced against benchmarks like Brent crude. When international prices shift, the effect is not felt at local petrol stations immediately. Oil imported for use in Kenya during any given month was ordered, priced and loaded onto tankers weeks earlier.

Under Kenya's Open Tender System (OTS) and government-to-government import arrangements, oil marketing companies bid to import refined products on behalf of the entire industry.

The land-side cost of these cargoes, known as the Cost, Insurance and Freight (CIF) price at the Port of Mombasa, reflects historical international prices rather than live market ticker rates. Consequently, a drop or spike in global crude today usually takes between 30 and 60 days to reflect in domestic retail pricing.

Foreign Exchange and the Shilling

The global price of oil is only one side of the pricing equation. Because petroleum products are traded globally in US dollars, the exchange rate of the Kenya Shilling against the dollar acts as a powerful amplifier or dampener.

If global oil prices fall by 5 per cent, but the Kenya Shilling depreciates against the dollar by 5 per cent over the same procurement window, the landing cost of fuel in local currency remains virtually unchanged. Conversely, a strengthening shilling can help absorb the impact of rising global crude prices, protecting local consumers from international price spikes.

EPRA incorporates the prevailing weighted average exchange rate applied by oil importers during the cargo procurement period into its pricing formula. This ensures that currency fluctuations are factored directly into the final land-side cost calculation.

Taxes, Levies and Distribution Margins

Once imported fuel lands at the Port of Mombasa, international benchmarks give way to domestic fiscal policy. A substantial portion of the retail price per litre consists of fixed government taxes, regulatory levies and statutory charges.

These domestic additions include:

• Excise Duty: A fixed tax levied per volume of fuel.
• Value Added Tax (VAT): Applied on both the product cost and certain tax components.
• Road Maintenance Levy: Earmarked for the repair and maintenance of national road networks.
• Petroleum Development Levy: Used for price stabilization and energy sector infrastructure development.
• Regulatory and Environmental Charges: Including the EPRA Levy, Petroleum Regulatory Levy and Merchant Shipping Fee.

Because many of these taxes and levies are fixed shilling amounts per litre rather than percentages, they create a price floor. Even if global oil prices were to fall dramatically toward zero, local pump prices would remain constrained by fixed domestic taxes, pipeline transport tariffs, depot storage fees and statutory dealer margins.

What Drives the Next Move

As EPRA prepares its upcoming monthly pricing reviews, analysts keep a close eye on two primary variables: global refined product benchmarks and the stability of the Kenya Shilling.

If international markets experience supply squeezes or geopolitical disruptions, the resulting cost increases will inevitably travel down the supply chain to Mombasa. However, the exact timing and magnitude of any local adjustment will depend on the foreign exchange environment and whether the state deploys stabilization mechanisms to smooth out retail price shocks.

For businesses and consumers managing budgets, watching global crude trends provides an early indication of where domestic transport and energy costs are headed over the coming months.

Related coverage: A Dollar Squeeze: US Inflation Drives Up Kenya's Debt Costs