Kenya’s fuel pricing outlook has come under renewed pressure following the importation of high-cost petrol outside the government-backed supply framework, raising concerns about a potential spike in pump prices in the April 15 to May 14 pricing cycle. Data indicates that two local oil firms sourced fuel at significantly elevated premiums, a move that could disrupt the relative price stability achieved under the government-to-government (G-to-G) arrangement.
The current G-to-G framework, signed in March 2023 with Saudi Aramco, Emirates National Oil Company, and Abu Dhabi National Oil Company, established fixed premium benchmarks of $84 (Sh10,917.48) per tonne of petrol, $78 (Sh10,137.66) for diesel, and $97 (Sh12,607.09) for kerosene. These fixed premiums have been central to cushioning the domestic market from global price volatility. However, recent imports executed outside this framework were priced at a premium of $290 (Sh37,691.3) per tonne more than three times the G-to-G rate.
The deviation was triggered by supply disruptions linked to geopolitical tensions in the Gulf region, particularly the closure of the Strait of Hormuz, which handles nearly 25 percent of global liquefied natural gas and fuel shipments. A vessel carrying 114.7 million litres of petrol destined for Kenya was unable to depart from the Port of Jebel Ali, prompting authorities to approve alternative imports to prevent domestic shortages. In response, approximately 60 tonnes of petrol were imported by each of the two firms at the elevated premium.
The pricing structure of petroleum products in Kenya is influenced by both Free-on-Board (FOB) costs and negotiated premiums. While FOB reflects the base price at the port of origin, premiums incorporate additional logistics costs such as freight, insurance, and handling. The sharp increase in premiums, combined with higher global benchmark prices for March, is expected to significantly raise the landed cost of fuel.
Industry estimates suggest that the premium differential alone could push pump prices up by at least Sh19 per litre. This increase would come on top of adjustments linked to rising global oil prices, amplifying the overall impact on consumers. Without intervention, this would mark one of the steepest monthly increases in recent periods.
The government retains the option of deploying subsidies funded through the petroleum development levy to moderate price increases. However, the scale of the premium disparity may necessitate a substantial fiscal outlay to fully cushion consumers. The situation presents a policy trade-off between maintaining price stability and preserving fiscal space.
To stabilise supply chains, alternative sourcing routes have been activated. Approximately 239.1 million litres of petrol are set to be shipped from the Port of Antwerp-Bruges via the Red Sea-Mediterranean corridor, with expected arrival in Mombasa between April 16 and 27. Additionally, 156.75 million litres of fuel including 81.15 million litres of kerosene and 75.6 million litres of diesel will be loaded at Sikka Port, with deliveries scheduled between April 12 and 21.
The reliance on alternative routes reflects ongoing supply chain adjustments as global energy markets respond to geopolitical disruptions. While these measures may alleviate immediate shortages, the cost implications remain a key concern. The evolving situation underscores the vulnerability of fuel-importing economies to external shocks and highlights the importance of structured supply agreements in managing price volatility.
