Fuel prices expected to drop further - PAU

Fuel prices have continued dropping in Uganda on the back of increasing supply chains and frugal monetary policies by the Central Bank.

Currently, a litre of petrol at Total Wampewo costs Shs5,080, while diesel costs Shs5,339 handing Ugandan consumers some relief in these tough economic times.

While fuel price movements are the major drivers of commodity prices across the board, there is optimism that pump prices may ease going forward.

However, how this plays against external factors like the Russia - Ukraine war and China reopening remains to be seen.

2022 saw pump prices hit new highs depending on which part of the country you were. Around Kampala, fuel was trading slightly over Shs7,000 while in up-country areas the price went as far as Shs10,000. This in turn sent prices of commodities and services across the board on an upward trajectory.

However, towards the end of last year, prices begun falling thanks to tightened monetary policies around the world that tempered the effects of the Russia Ukraine war as the world looked at a possible recession.

Impact of  Russia –Ukraine war
The Russia –Ukraine war is about to hit the one year mark. Many changes have since happened and some policies have been instituted to mitigate the effects from that war.  

Tom Ayebaare, the manager of Economic and financial analysis at the Petroleum Authority of Uganda (PAU explains, “What we need to understand is fuel prices have dropped largely due to a decrease in demand globally and countries finding  short term solutions to the Russian oil which has been banned or capped for some markets.”

With a squeeze on oil supplies around the world, inflation was inevitable. However, Ayebaare notes, “Central banks around the world have instituted policies to reduce the money in circulation. Everyone is trying to achieve a certain market equilibrium.”

Therefore, if nothing changes in the Russia Ukraine war, a further drop in fuel prices in the first two quarters is in sight.

The China effect
One of the things that will dominate economic news this year is China’s transitioning from its zero Covid-19 policies that have isolated it from the world for nearly three years.
 
China is the leading importer of crude oil in the world. Its reopening and reviving its industrial capacity will change supply dynamics.  

However, Ayebare believes the China effect will kick in later in the year.

“China is reopening but we don’t see it return to full capacity in at least the first two quarters of 2023. But if it returns to full capacity, then we shall see prices rise again.”