Business Daily (Nairobi)
Geoffery Irungu
18 September 2007
Nairobi — Rising international oil prices, which hit $81 a barrel yesterday, are likely to impact on domestic prices further as the country battles to contain inflation that has strayed out of the target single digit level.
Even before the recent crude oil rally, fears of inflation pressure were already high after the meteorological department projected heavy short rains that would lead to floods and mudslides, heralding poor harvests.
That there is excess money supply in the economy is evident in rising repurchase costs in the interbank market and growing volume of such agreements now held by the Central Bank of Kenya. The contracts are normally used to mop up excess liquidity from the market. (See story on page 20).
The Petroleum Institute of East Africa (PIEA) warned of higher local pump prices as it became clear that the increased output of 500,000 barrels by the Organisation of Petroleum Exporting Countries (OPEC) had had little or no impact on pricing.
OPEC has indicated that it hold consultations about a further output increase if the price of oil stays above $80 a barrel for more than 15-20 days.
For the fourth consecutive session, US crude futures hit a fresh record high of $81.24 a barrel uncomfortably high for some members of the producer group worried more about future oil demand than the potential impact on global economic growth.
An investment analyst also warned that the increase would affect all other products and services in the Kenyan economy, noting that prices were already high.
PIEA general manager George Wachira told Business Daily that there were too many features of the global economy that influenced prices other than OPEC's decision.
"Some of these features are real, others may be oil commodity traders speculations. It is difficult to say what levels of oil prices to expect in the near term," said Mr Wachira.
The high oil prices are being influenced by the demand and supply imbalances with rapidly diminishing stocks with some countries such as India and China having abnormally high demand to fuel their fast-growing economies.
He recommended that non-oil producing countries such as Kenya embark on policies that address long-term impacts of high global oil prices on the national economic activities.
"Such (policies) could include development of alternative fuels, fuel conservation measures and intensified search for oil and gas," he said.
Last week, Reuters reported that the growing demand for oil backed by supply fears in Mexico could add as much as $10 a barrel to world oil prices, a development that could negative impact on local fuel consumers.
Local pump prices went up again towards the end of last week by Sh2 to hit over Sh80 for the unleaded petrol although it was still possibly to find same product in some branded stations selling at Sh77 in Ruaraka area of Nairobi.
Last week, Mr Andrew Omolo, the commercial manager of Triton Petroleum, told the Business Daily that global oil prices outlook is still not very encouraging, local pump prices will remain in the same range or move up.
Mr Charles Ocholla, head of investment banking and fund management, said in an interview that the price hike would affect manufacturers and transporters, among other business, which would be reflected in higher inflation and this could even affect economic growth.
Chances are that the overall 12-month inflation that declined to 12.4 per cent in August, from 13.6 per cent in July, could go up in September on account of the higher oil prices.
The government target is single digit inflation, which has often proved elusive for the last two years.
Among the consumers of paraffin and public transport users in the Nairobi lower income group, inflation was highest averaging 14.3 per cent in August. Indeed, this was the third successive month recording double digit inflation in 2007.
Be the first to Write a Comment!
Copyright © 2007 Business Daily. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
