A surprise move by Riyadh could cause more pain at the pump

Consumers brace for even higher fuel prices as Saudi Arabia cuts oil production to shore up prices

East Africa is staring at another round of fuel price rises following a move by Saudi Arabia to cut supply by one million barrels per day, with the 13-member group of oil producers (Opec) agreeing to extend their previous oil supply cuts of 3.6 million barrels per day to the end of 2024.

Saudi Arabia announced it it would begin cutting oil production by 1 million barrels per day in July to support the “stability and balance of oil markets”, a move analysts see an attempt to prop up oil prices in response to global economic uncertainty and concerns that international demand could drop.

This comes amid rising oil demand in Africa, with the Organisation of Petroleum Exporting Countries (Opec) projecting the demand for the commodity on the continent to increase by 4.31 percent to 4.59 million barrels per day this year, from 4.4 million barrels per day in 2022.

Globally, oil demand is forecast to grow by 2.4 million barrels per day in the second half (July-December) of this year, according to Opec’s monthly oil market report dated June 13.

In 2022, oil demand in Africa increased by 4.76 percent to 4.4 million barrels per day, from 4.2 million barrels per day in 2021.The latest dynamics in the global oil outlook market adds more pressure on the regional oil prices which have been heavily impacted by local taxes.

Kenyans are bracing for the highest rise in retail prices of fuel due to the doubling of the value-added tax to 16 percent, with fuel prices topping out over the weekend despite a court order stopping the implementation of the Finance Act 2023.

The Energy and Regulatory Authority (Epra) released the new retail prices on June 30 after factoring in an additional eight percent VAT, pushing the pump price of a litre of petrol in Nairobi to Ksh195.53 from Ksh182.04. Diesel and kerosene are retailing at Sh179.67 ($1.28) and Sh173.44 from Sh167.28($1.19) and Sh161.48($1.15) respectively.

In November last year, Opec and its allies, including Russia, agreed to cut oil output by two million barrels per day, the largest supply cut since 2020, citing uncertainty surrounding the global economy and oil market outlook.

In April, Opec also agreed to a surprise voluntary cut of 1.6 million bpd which took effect in May until the end of 2023. But the cuts have not had the intended effects of raising crude prices, with Brent price, on average, declining by 9.2 percent to stand at $75.69 per barrel in May this year, from $83.37 per barrel in April.