Oil Retail Pricing and Price Controls: A case of Oil Marketing Sector in Kenya

Abstract

Purpose- the study sought to foremost, determine the effect of international crude oil prices and exchange rate on average monthly retail prices of four oil products in Kenya and to secondly, establish the relationship between the monthly oil retail prices in the period before and after introduction of price controls.

Methodology- a descriptive longitudinal design was adopted utilizing secondary data. Multiple regression analysis and simple correlation analyses were used for data analysis.

Findings- the two predictors had a significant effect on average monthly retail prices for all the products though they had a lesser explanatory power on average monthly oil retail prices in the period after introduction of price controls compared to the period before thereby suggesting that price controls had caused some effect on average monthly retail oil prices of all the four oil products. In the period before introduction of price controls, monthly international crude oil prices and exchange rates explained much of Super prices and little of Kerosene prices; after the introduction of price controls, the two variables explained more of Diesel prices but very little of Regular prices. A positive correlation between average monthly retail prices of Super and Diesel products in the period before and after introduction of price controls was documented unlike Kerosene and Regular whose prices exhibited a negative correlation.

Implications-both predictors were found to be key in explaining monthly oil retail prices singly; there is noted need for ERC to consider other factors in setting maximum monthly oil retail prices due to the low coefficient of determination documented.

Value- ERC to consider other factors in setting maximum oil retail price ceilings and researchers to study other factors explaining oil retail pricing other than the two predictor variables of the study.