Why Falling Global Fuel Prices May Not Ease Kenya’s Pump Pain Yet

Kenyan consumers may not fully benefit from the recent decline in global fuel prices when the next fuel review is announced on June 15, following changes to the country’s fuel pricing formula according to business daily.

Under the previous system, fuel delivered during the first half of a month was priced using the previous month’s international benchmark prices, while cargoes arriving in the second half used prices from the current month. The revised formula now applies a single pricing reference for all fuel delivered within a month, using the average international prices from the immediately preceding month. While the change is intended to improve consistency and transparency, it also means that the sharp decline in global fuel prices recorded in May may take longer to reach consumers.

The timing matters because global refined fuel prices fell significantly in May. Diesel prices dropped by nearly 20%, while jet fuel prices declined by 23% on the hopes of easing geopolitical tensions in the Middle East would lead to the reopening of the Strait of Hormuz.

As a result, the government may have to spend more on fuel stabilisation measures if it intends to maintain its commitment to lower diesel prices.The challenge comes at a difficult fiscal moment.The State has already surrendered an estimated Sh24 billion in revenue by halving fuel VAT to 8% and Treasury says only about Sh5 billion remains in the Petroleum Development Levy, the very kitty meant to stabilise pump prices.

With the new formula delaying the pass through of May’s price collapse, the government is left with two thinning buffers and a political promise to keep diesel lower.While the new formula may improve transparency and consistency, it also increases the pressure on public finances in the short term if the government chooses to maintain fuel price support.

For consumers and businesses the long term advantage of the new formula is predictability. Instead of relying on different pricing benchmarks within the same month, all fuel imports will now be priced using a single reference period, making pump price calculations more transparent and easier to scrutinise.

Although consumers may miss out on some immediate relief from May’s drop in global fuel prices, the revised system is designed to reduce pricing distortions and create a clearer link between international fuel markets and local pump prices.