The Energy Regulatory Commission (ERC) is today, 14 November 2012, expected to announce reviewed fuel prices for the period starting 15 November 2012 to 14 December 2012. Based on the latest drop in international oil prices and marginal depreciation of the Shilling over the month of October, what should we expect in the forthcoming fuel price review?

As posted by Abu Dhabi National Oil Company, the Free On Board (FOB) price of Murban crude oil lifted in October 2012 dropped to USD 113.20 per barrel from USD 115.40 per barrel in August 2012.

Data from Central Bank of Kenya (CBK) also show that the shilling depreciated marginally in October as compared to August. From our calculations, the mean exchange rate for the month of October is KES 85.11 to the Dollar from KES 84.70 to the dollar posted in September. This reflects 0.48 percent depreciation.

As it is the norm, ERC fuel price reviews take into consideration current trends in international oil prices, capping the pump prices of the products which are already in the country, such that the importation and other prudently incurred costs are recovered, plus protect the consumer.

Based on the above price movement, our calculations showed that the price of super petrol will drop to KES 113.47, diesel to KES 104.46 and kerosene to KES 84.68.

Our calculations are based on the relationship between the price of crude oil in the international market, strength of the shilling against major currencies and the prices set by ERC over the past 12 months. It is important to note, we took the assumption that costs associated with refining, production, transportation and prevailing taxes remained constant.

In as much as we project a drop in fuel prices, the Business Daily has reported an acute shortage of petrol in Western Kenya. This comes amid fears of hoarding by traders speculating on the monthly review of fuel prices scheduled for later on in the day. This means there could be possible rise in fuel prices.

Our projected pump prices are for Nairobi, the energy regulator (ERC) will post the exact fuel prices later on in the day.

As it currently stands, super petrol retails for KES 115.26, in Nairobi, Diesel at KES 106.11 and Kerosene at KES 86.01.

*Our calculations are subject to an allowance of + or – KES 3.