The Energy Regulatory Commission (ERC) is expected to review fuel prices tomorrow, 15, September 2012. This fuel price review will include a new surcharge to be added to the fuel pricing formula which could contribute to a rise in fuel prices.

ERC added a cost of credit surcharge to its fuel pricing formula in order to cater for higher financing costs faced by oil marketers. The surcharge will be introduced during this month’s retail price review for kerosene, diesel and petrol, possibly pushing up prices marginally.

This new surcharge was necessary after oil marketers complained over the previous formula stating that it ignores other actual costs in the delivery of oil products. Oil marketers reported poor results for the first half of the year. KenolKobil for instance posted a KES 3.9 billion loss after tax while Total Kenya incurred a loss of KES 254 million after taxes, as reported by Business Daily and Standard Investment Bank. The new charge brings the overall margin enjoyed by fuel marketers to KES 10 per litre while cover for financing rises to KES 1.00.

Recent trends in the international oil market show a steady rise in the price of crude oil. The price of Murban crude oil has been on a steady rise since June 2012.

Take a look at the trends below:

During the last fuel price review, the regulator warned that an upward trend in the price of crude and refined products had been observed in the international market over the last month and may diversely affect prices in subsequent price reviews.

As it currently stands, a litre of super petrol retails at KES 106.48 while diesel and kerosene retails at KES 97.08 and KES 73.97 respectively. Based on inclusion of the new surcharge to ERC's fuel pricing formula plus observed trends in the international oil markets, anticipate a rise in fuel prices.