In Kenya, motorists, matatu operators and boda boda riders wait for the Energy and Petroleum Regulatory Authority announcement of new pump prices every month around the fourteenth. The numbers that appear on Nairobi forecourts the next morning originate thousands of kilometers away in global markets where crude oil contracts change hands continuously. Each monthly review reflects movements in those markets over the preceding weeks.
Kenya’s fuel imports, which arrive through Mombasa, are priced against international benchmarks linked to Brent crude. When futures prices in London, Singapore, and New York rise on Middle East supply risks or OPEC+ production shortfalls, the price of refined products delivered to East Africa tends to increase in subsequent pricing cycles. Kenya has imported refined products such as petrol, diesel, and kerosene since the Mombasa refinery, the country’s only refinery, stopped processing crude in 2013. That leaves the country exposed to both crude benchmarks and Gulf refining margins.
A monthly price announcement can reflect market activity from several weeks earlier, which can be explained by having an understanding of how commodities trading works. The regulator’s pricing formula uses landed costs, based on the costs of cargoes priced and shipped before the review date. When global prices of oil do change while local pump prices don’t, the gap is generally the result of the pricing lag. There are more layers between the international price and the final bill, including taxes, levies and margins for importers and retailers. The shilling plays an often overlooked role. A weak shilling can raise the cost of oil cargoes even when international prices hold steady, because cargoes are invoiced in dollars. Much of the frustration in 2023 was due to the combination of a falling shilling and the doubling of VAT on fuel from 8 percent to 16 percent under the Finance Act 2023. Economists are still debating the impact of the government-to-government fuel import pact with Gulf state oil companies, launched in 2023 with longer credit terms, which was partly intended to reduce dollar demand.
The link between oil and daily costs is real enough for young Kenyans to have sparked interest in direct trading of the market. Contracts for difference of crude oil are widely marketed on the internet and several brokers licensed by the Capital Markets Authority offer them together with currency pairs. To newcomers, oil seems predictable with OPEC meetings regularly in the news, but energy markets are volatile to inventory reports, weather and geopolitical events. The practice of opening leveraged positions after a news release and then closing those positions at a loss once it is determined that prices have already reflected the news is a common pattern of error.
For businesses, fuel prices carry direct operational consequences. Fuel costs shape budgets for transport companies, flower exporters that rely on air freight, and manufacturers that run diesel generators. Large companies are sometimes able to use hedging instruments arranged through their banks to stabilize future fuel costs, but these instruments remain out of reach for most small businesses, which absorb the cost or pass it on to customers through increased fares and prices.
Fuel pricing in Kenya is typically debated in Parliament and on morning talk shows as a domestic political issue. Its causes lie in global markets and in the exchange rate. Public discussion that accounts for commodities trading, currency values, and tax policy gives consumers a clear view of how pump prices are set.