Business Daily (Nairobi)
Michael Omondi And Kelvin Kizito
2 January 2008
An acute fuel shortage that has gripped East Africa over the past four days continued to bite even as oil marketers raised hopes it would ease in two days.
Distribution of fuel from the national pipeline to the pump station was disrupted for four days following post-election violence that followed the declaration of President Mwai Kibaki as the winner of the presidential poll.
Suppliers kept their tankers off the road fearing rioting mobs prompting an escalation of pump prices in Uganda and long queues at the few fuel stations with fuel in Kenya.
Yesterday, however, the oil marketers, ministry of energy and internal security officials moved to avert the fuel crisis by offering extra security to the tankers, which have remained grounded since Monday.
This emerged after a crisis meeting by the top officials of the three institutions.
"Now we are in a situation where we are able to deliver products from today," said Patrick Obath, the Kenya Shell managing director, insisting that normal suppliers would resume in "two to three days."
This comes after a survey by the Business Daily showed that the fuel shortage being felt in Nairobi was now spreading across major towns in the country.
From Nakuru to Eldoret to Kisumu long queues formed at the few fuel stations that still had petrol amid concerns that the attendants were limiting consumers to only a few litres.
Most stations have already run out of cooking gas and kerosene at a time when major urban centres are facing food shortages besides escalation of food prices following the shortage.
In Uganda, the shortage has pushed petrol prices up 317 per cent from Sh92 (USh2400) to Sh384 (USh10, 000) per litre, the highest hike in the country's history.
The country relies on tankers from the three Kenyan pipeline terminals in Eldoret, Kisumu and Nakuru for its supply.
But the ongoing violence in areas surrounding the three towns has hindered supplies in the past four days.
The biting fuel shortage comes at a time when consumers in Kenya are bracing for another round of price adjustments after crude costs were headed for a new record.
Yesterday, crude prices settled at $96 a barrel having risen by eight dollars since Christmas on dwindling fuel stocks coupled with ongoing strong demand for oil. And analysts, led by investment firm Goldman Sachs, maintain that crude prices will breach the $100 mark they had earlier predicted.
Mr George Wachira, the general manager of Petroleum Institute of East Africa, the industry lobby, reckons that the outlook of crude prices was uncertain, predicting that local pump prices would continue to maintain an upward gradient.
"The prices can only go up, they can only reduce if global crude prices come down substantially," said Mr Wachira, stressing that the sharp rise in freight costs would put an additional strain on pump pricing.
Kenya Shell reckons that the current crude prices are yet to be reflected at the local pump prices, arguing that they would come in force in the weeks to come.
The current pump prices are based on crude prices bought in mid December when crude prices stood at an average of $87 per barrel, suggesting that the next load will come at a higher price.
Normally, oil marketers tender monthly for oil importation in a system dubbed Open Tender System (OTS) where one marketer imports crude oil, which is only enough to last a month, on behalf of other players.
Spot checks by the Business Daily reveal that a litre of unleaded fuel is retailing at an average price of Sh86.50 within the Central Business District (CBD) in Nairobi up from Sh84 in mid December.
But with indications that barrel prices are likely to go higher, players in the oil market reckon that local pump prices were likely to go within touching distance of Sh90 a litre for unleaded fuel, a move that looks set to hurt consumers and oil marketers alike.
For oil marketers, the rise in crude prices would worsen the already tough market that has seen the listed ones post reduced earnings compared to double digit growth earnings five years back.
Market dynamics are such that high crude prices not only translate to decreased consumption, but also leave marketers with reduced profit margins per unit of sales.
Consumers should expect a surge in commodity prices as high fuel prices look set to push the cost of production upwards, a move that will see producers pass on the extra costs to consumers in the form of higher producer prices.
Be the first to Write a Comment!
Copyright © 2008 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.
