The Ones and Twos of the PUMP

Prepared by: Stephanie Kimani

I can honestly tell you that once I got my first car, the ERC fuel price review mattered a lot. I remember one night as I was heading home from University; I passed by the nearest petrol station to fill up my tank. I normally drove my car around till it hit the empty sign then get into a panic when I needed to fill it up. When I got to the petrol station, the attendant informed me that the fuel prices were to be reviewed the next day and they expected that fuel prices were to go down (sure enough, they did) and that I would have filled up my tank then. Since then, I have paid attention to trends and made sure (yes, I actually do this) that I fill my tank a day before or on the day of the review (depending on my expectation). Currently, my tank is about to hit empty and I would like to share with you why I am taking this gamble

Fuel prices cannot be ignored and command a lot of attention. Every month, the Energy Regulatory Commission revises the fuel prices to reflect changes in the price of crude oil and the economic conditions surrounding the purchase of the oil.

My understanding of how these prices are set is based on a one month lag. When it comes to currency, this means that this month’s fuel price is expected to follow the trend of the USD/KES exchange rate from the past month. If the USD/KES exchange rate depicts a positive upward trend (Being that the Kenyan shilling is depreciating) between April 2015 and May 2015 then we would expect that the pump price in June 2015 would increase.

Currency and Pump pricesAs the graph shows, if there is an upward (downward) trend seen in the USD/KES exchange rate a month prior to the ERC review, we would expect an increase (decrease) in pump price (for review sake, I have chosen to take Super petrol prices as my sample)

As for the price of crude oil, I always stay up to date with the daily WTI and Brent Crude oil prices (It’s actually quite interesting when you get a hang of it). These two are used as important benchmarks in determining global oil prices. For my analysis, I will use the average monthly crude oil prices of the OPEC basket for the period October 2014 to October 2015.

OPEC prices

Based on this graph, we can deduce that pump prices may be fairly related to the trend in the average monthly crude oil prices for the previous month. An upward (downward) trend seen in the average monthly crude oil prices a month prior to the ERC review, may lead us to expect an increase (decrease) in pump price.

As we cross our fingers, legs and toes while others rush to the petrol stations to fill up their tanks, I don’t expect an upward revision in pump prices. Together with my brief analysis, my hope is that the ERC are in the Christmas mood and the spirit of giving will lead them to allow us to save some few coins especially in the wake of higher inflation.