Global oil prices tumbled to a near three-decade low in overnight trading on Sunday in the aftermath of a fall out between major world crude producers.
This is after Saudi Arabia- the second-largest oil producer in the world and a member of the Organization of the Petroleum Exporting Countries (OPEC) controversially discounted its oil stocks in reaction to Russia’s refusal to back sharp cuts to production.
As such benchmark crude prices fell by over 20 per cent to historical levels seen previously in 1991’s Gulf War fall-out.
The benchmark Brent crude oil price fell below $34 (Ksh.3490.78) before picking up slightly to return north of $35 (Ksh.3593.45) at dawn on Monday to mirror a near 22 per cent plunge.
On Friday, OPEC’s 14 members led by Saudi Arabia failed to agree on with Russia on output cuts to combat falling fuel prices arising from low oil demand.
The world’s oil supply has continued to exceed demand in recent weeks as the Coronavirus epidemic halts the world’s economic growth.
The OPEC and non-OPEC alliance have worked previously to hold up oil prices around the world with parties agreeing to periodic adjustments to output in relation to prevailing demand.
Last week’s events are in essence seen as a collapse to the alliance and a major shock to the global oil market amidst uncertainties generated by the Coronavirus pandemic.
The impact of the virus’s spread on the industry is becoming apparent by the day with global oil demand being set to register its first full year of decline in more than a decade from the deep contraction witnessed in China which has triggered major disruption to travel and trade.
In 2019, China accounted for more than three-quarters of global oil demand growth.
According to data from the International Energy Agency (IEA) China is set to see a massive 1.8 million barrels per day (b/pd) slash to oil demand in the first quarter to the end of March as factories shut down while large-scale confinement measure curb travel.
The drop is expected to set-off a decline in global oil demand by around 90,000 barrels a day in the first annual fall since 2009.
With a fall-out among producers, output by both OPEC and non-OPEC members will remain at the discretion of each party spinning further uncertainty to global oil demand and supply in the next nine months.
The plunge in oil prices, however, comes as good news to net oil importers such as Kenya as it is indicative of future downward adjustment to pump prices.
The Energy and Petroleum Regulatory Authority (EPRA) is set to adjust its maximum pump prices on Saturday with all indicators pointing to a downward review to costs.
Nevertheless, the magnitude in price adjustment takes into account a lag in imports with changes being priced on the average landed cost of each crude petroleum.
During its February 14 review, EPRA impacted a Ksh.2.67 and Ksh.2.13 increase in the cost of petrol and diesel per litre while the cost of kerosene reduced by Ksh.1.26 a litre.