OPEC plan to cut oil supply may cause rise in local fuel prices

Consumers in Kenya and other oil importing countries may experience a jump in fuel prices after Oil Producing and Exporting Countries (OPEC) plan to voluntarily cut crude oil supply by a 1.2 million barrels a day.

The first deal by world’s biggest oil and producing countries, which include Russia, Saudi Arabia, Iraq and Iran, will see them cut oil supply by 1.2 million barrels a day and will be effective in the first quarter of 2017.

OPEC states are hoping they will benefit from a coordinated production cut given that they will gain more revenue from higher prices than they lose in foregone output.

On Monday, the price of Brent crude rose to $55 (Sh5,600) per barrel, the highest level since mid-2015.

Non-OPEC members said over the weekend they will reduce output by about 558,000 barrels a day in addition to OPEC’s commitment to cut 1.2 million starting in January. It is the first production cut in about eight years.

The move comes at a time when approximately 25 per cent of Kenya’s total import bills goes to petroleum products and may expose the nation to shocks from global oil price fluctuations.

Recent data from the Petroleum Institute of East Africa reveals that Kenya’s consumption of petroleum as per the end of 2015 was 5.88 billion litres of oil, a 1.83 billion hike compared to 2010 when the total country’s consumption stood at 4.05 billion litres.

Experts project slower economic growth should this happen, given that high import bills will weaken Kenya’s currency, forcing the government to spend more on imports of the basic commodity.

With this likely to happen, motorists, commuters and low-income Kenyans who rely on kerosene for cooking and lighting will be forced to dig deeper into their pockets.

 

 

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