Fuel prices rise above Shs5,000

Uganda’s fuel prices have risen again, giving motorists across the country another headache at the pump.

Several gas stations have in the last fortnight or so raised their prices in increments between Shs80 and Shs300. This has hauled pump prices marginally over the Shs5,000 mark on various fuel boards that this publication noticed over the last three days.

While pump prices at some forecourts remained unchanged, traders told Monitor that worries abound as to the possible impacts of the current state of affairs.

“We only just realised this week, but we are looking into the root of the problem,” Mr Thadeus Musoke Nagenda, the chairperson of the Kampala City Traders Association (Kacita), said.

He added: “At a time when inflation has stabilised, this will unquestionably have an impact on the already high cost of living.”

Fuel prices rose steadily in recent months as a result of global production cuts, before easing later last month.

The rising prices are intriguing because, according to a pump attendant at a fuel station in Kireka, Wakiso, “fewer people are fuelling up” their cars this year than in previous years.

Drivers who have noticed an increase in the city’s average pump price say that Kampala is experiencing the sharpest of increases.

Year-on-year, pump prices have reduced significantly from Shs6,500 and Shs10,000 per litre of gasoline and diesel buyers were met with in 2022. This has been telling in dealing with inflationary pressures, with headline and core inflation dropping to 3.9 percent and 3.8 percent in July from 4.9 percent and 4.8 percent in June.

The latest increase in pump prices is attributable to a perfect storm, experts have told Monitor. Usually, the price of oil is to blame when fuel prices rise. Oil prices, however, are only one aspect of the story this month. 

This month, the price of a barrel of crude oil on the global market increased from $77.91 (about Shs282,000 ) in April  to $82.58 (about Shs306,000). 

According to the Energy ministry, Uganda’s fuel delivery time is between one and three months, so this is the range that can be calculated.

“Fuel prices are volatile. They generally follow what is going on in the economy. For example, the depreciating shilling, transportation costs, and the international price of oil,” Rev Frank Tukwasibwe, the Energy ministry’s commissioner of petroleum, said.

Uganda consumes approximately seven million litres of fuel per day, with the majority now diverted to Lake Victoria to reduce transportation costs. The aforesaid costs previously put logistic companies under pressure in terms of fuel and wear and tear costs.

Rising heat in the Arab Gulf, where Uganda imports diesel fuel from, is typically bad for oil refineries, which are designed to operate between 30°C and 35 °C.  According to reports from the Middle East, the temperatures in the oil-rich nations threatened to surpass 42.1°C, a record set in 2017 by reaching record highs in July. This forced some refineries to reduce their output, which decreased the supply on the market.

“Extreme temperatures are undesirable for refineries because they are extremely hazardous locations. So they reduce production, which actually affects the market’s supply,” said a major oil importer who asked to remain anonymous.

Last month, Saudi Arabia, the world’s second-largest oil producer, decreased production by one million barrels per day to stabilise and balance the oil markets. It will continue to produce nine million barrels per day through the end of September.

“Platts sets the global average for energy prices. Our fuel delivery lead time ranges from one to three months,” Mr Antony Ogalo, the general manager of Uganda’s Sustainable Energies and Petroleum Association (SEPA), told Monitor.

He added: “The price of fuel that we see on the Ugandan market is what the importers paid for about three months ago, and that likely depends on available stock in the global market.”

Platts  provides commodity and energy information and benchmark price assessments.

Mr Ogalo said in the US, when China’s oil stocks fell after recovering from the economic turmoil brought on by the Covid-19 pandemic, the recovery increased demand.

“Because [the US and China] had to produce more in order to revive their economies, prices went up [since] they demanded a lot of oil … that shot up prices,” he said.

The prices of Uganda’s imported refined goods, which are primarily from the Arab Gulf, are impacted by the price of crude oil when this occurs, he further explained.

The Gulf nations include Bahrain, Kuwait, Iraq, the United Arab Emirates, Saudi Arabia, Qatar, and Oman.

Analysts say Uganda has no control over fuel prices because it has a liberal economy.

Fuel prices are not under the control of national oil companies, particularly when oil prices have risen in countries from which the nation imports.

Despite this, resentment among the traders in the capital of Uganda has already mounted.

“The consumer would undoubtedly make up for that margin, so this will likely have an impact on all cargo that is transported,” Mr Musoke said.

As a result of rising operating costs, Kacita has already planned a meeting with the Energy ministry to discuss the best way to manage the continuing volatile fuel prices. They assert that doing so will enable their businesses to cut back on logistical expenses.

Rev Tukwasibwe believes fuel prices will fall in the short term.

“The most important thing is to make sure there is fair competition among fuel-selling businesses in the nation to prevent price increases that are bad for consumers. However, a small number of importers raise prices after smuggling fuel without our knowledge,” Rev Tukwasibwe noted.

Similar to traders, cyclists are concerned about the situation and want the government to find the best solution as soon as possible to avoid long-term price increases.

“If possible, the government could moot for us a fuel subsidy...We do not save at all because even the most basic necessities are now very expensive,” a boda boda rider, Mr Moses Kayiwa, said.

In June, President Museveni said the government can only subsidise fuel if other economic factors, such as sanctions from the West have a discernible impact on fuel prices.