Nation

Why petrol sells at lower prices than diesel


PAUL WAFULA

By PAUL WAFULA
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Mr Titus Wamalwa, a driver of a commercial vehicle, stands at a fuel station in Lavington, Nairobi seemingly shocked.

Since Mr Wamalwa started driving 10 years ago, diesel has never cost more than petrol.

Even Shell’s V-Power, a premium product that promises better engine performance and speed, is also cheaper than diesel.

“I don’t understand. The only fuel that has remained cheaper than diesel is kerosene,” a bewildered Wamalwa says as he fills his tank and pays via mobile phone.

He has bought some 20.5 litres of diesel for Sh2,000. This translates to about Sh97.56 per litre. It is at least Sh4.6 more expensive than super petrol, which is used by smaller private cars.

Super petrol is retailing at Sh92.87 per litre on this day, just slightly more than the V-Power, which is selling for Sh92.87 at the same station.

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A majority of heavy commercial vehicles, pick-up trucks, long distance buses and matatus use diesel.

The same is the case with factories that have power generators. That explains the reason bus and matatu fare increases every time diesel prices go up.

Mr Wamalwa represents thousands of motorists who still cannot understand how petrol ended up being cheaper than diesel, especially when most private cars are not on the road.

“The diesel consignments used in the computation of prices this month were procured in February when the crude oil price was relatively high,” Energy and Petroleum Regulatory Authority (EPRA) Director-General Pavel Oimeke said in a statement.

EPRA was established as the successor to the Energy Regulatory Commission (ERC) under the 2019 Energy Act.

“Accordingly, the effect of the recent crash in crude oil prices will be reflected in the retail price of diesel in subsequent reviews,” he added.

EPRA said the changes in prices this month, which saw super petrol, diesel and Kerosene reduce by Sh18, Sh4 and Sh18 respectively, were as a consequence of the average landed cost.

The price of imported super petrol decreased by 34.6 per cent from $472.59 per cubic metre in February to $309.03 in March.

Diesel decreased by 9.89 per cent from $421.24 per cubic metre to $432.70 while kerosene decreased by 37.7 per cent from $421.21 to $262.44.

Mr Oimeke did not respond to inquiries on why the reverse never happens.

We wanted to know why ordinary Kenyans end up on the losing side of the price regulations that protects margins for retailers and wholesalers.

Had the prices of crude gone up, marketers would switch to the new prices immediately since the sell of cheaper stocks at more expensive prices is hugely profitable.

Whenever prices drop, they never pass these benefits to consumers until they clear the old stock. That is what happened this month.

It denies Kenyans the benefits of cheaper fuel like in markets without price controls.

The Nation also wanted to know why the government allowed the purchase of diesel beyond the normal consumption requirements when the global crude prices were clearly headed south.

At the international stage, things got from bad to worse for producers this week, when crude oil prices went into negative territory for the first time following one of the most painful oil gluts the world has ever seen.

The glut was exacerbated by a collapse in demand for oil as factories remain shut, planes are grounded and a majority of vehicles are parked in a bid to stop the spread Covid-19.

The prices have fallen so much that some traders started paying buyers to take oil off their hands on Monday, in a bizarre twist.

Negative oil prices mean that anyone who wants to sell a barrel would now pay a buyer!

On Monday, a seller was paying a buyer $30 (Sh3,000) to take away a barrel of oil. This is similar to going to your petrol station and being paid to fuel your car.

With the crash, there is no motivation for refineries to convert crude into petrol, diesel or any other fuel since very few people are driving or flying.

There are no more business trips, with most executives relying on video conferencing and other technology in running their firms without necessarily moving out of their houses.

It is estimated that the world has a storage capacity of 6.8 billion barrels of oil and more than two thirds is occupied.

What is worse is that it is more expensive to turn off the oil taps than just let them run to waste since shutting down wells and restarting them requires expensive manpower and equipment.





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