Fuel prices in Kampala reached their highest point since November 2022 on Monday, attributed to global factors affecting the local industry.
Throughout the past month, fuel prices have been steadily climbing, reversing a year-long trend where petrol averaged 4,800 Shillings per liter and diesel at 4,600 Shillings at major dealers like Vivo Energy Uganda and TotalEnergies.
However, on Monday morning, some Vivo Energy Uganda stations posted petrol prices at 5,410 Shillings per liter, while smaller and newer marketers set it at 5,100 Shillings. This marks a 600 Shilling increase in just one month. The Ministry of Energy and Mineral Development explained in their update that these changes are linked to the global increase in crude oil prices, which itself stems from a scarcity of raw materials.
The local prices have also been affected by recent fluctuations in the foreign exchange rate. The exchange rate rose from 3,583 Shillings on August 5 to 3,744 Shillings on August 13 and has remained relatively stable since. Back in May, several members of the Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia (OPEC+), began reducing crude output to boost demand-driven price increases.
These measures were a response to sharp price drops caused by slower-than-expected global economic recovery and looming recessions in major economies, including those in Europe, the UK, and the USA. Leading suppliers like Saudi Arabia and Russia curtailed production by 500,000 to 1 million barrels per day, significantly impacting global supply.
While Saudi Arabia’s cuts were primarily economic, Russia’s reductions were seen as part of its strategy in response to Western sanctions related to the conflict in Ukraine. Consequently, crude oil prices climbed to $88.7 per barrel by Monday, the highest level in nine months.
Concerns persist that prices may continue to rise as the primary suppliers maintain or potentially increase their production cuts. Analysts note that Saudi Arabia has yet to realize the expected benefits of its oil cuts due to ongoing economic challenges stemming from reduced demand.
In contrast, Russia, enjoying increased revenue, sees advantages in limiting cuts further to finance its Ukraine war efforts and withstand sanctions. Industry leaders in the country anticipate more cuts in September and October.
Acme Investment Advisors commented that increased U.S. output since June, reaching 12.8 million barrels compared to 12.6 million in May, has somewhat mitigated supply shortages.
As of June, the Ministry of Energy reported global demand at 103 million barrels per day, slightly exceeding the International Energy Agency’s forecast of 102.1 million. The ministry anticipates further price increases before stabilization, due to anticipated output reductions by the OPEC+ alliance.
Oil experts highlight that the impact of these changes in the global crude market typically takes two to three months to affect non-oil sectors like Uganda. The ministry emphasized that these price hikes directly impact the cost of imported fuel in Uganda, ultimately influencing domestic fuel prices. However, it stressed that Uganda’s fuel prices remain competitive.
The ministry also pledged to continue monitoring the situation and exploring strategies to enhance petroleum product supply security in Uganda, as fuel scarcity could trigger a pricing crisis. Uganda predominantly imports petroleum products through Kenya and is currently the most expensive country in the region for fuel purchases.
Last month, Kenya reintroduced fuel subsidies, one year after their removal by the previous government, capping the maximum petrol price at $1.35 (5,050 Ugandan shillings).