Kenya extends oil supply agreement with Gulf firms

Kenya has extended an oil supply deal with three Gulf-based companies, which is designed to manage demand for dollars, the energy regulator said on Tuesday.

The East African nation entered the deal with Saudi Aramco, Abu Dhabi National Oil Company and Emirates National Oil Company in March, switching from an open-tender system in which local companies bid to import oil each month.

“There was an extension up to December 2024 so this is basically arising out of negotiations that have been happening to drive down the freight and the premium [costs],” said Daniel Kiptoo, the head of the Energy and Petroleum Regulatory Authority (EPRA).

The deal had helped lower the cost of transporting oil to Kenya and the premium it pays to suppliers, he said. It also comes with 180-day credit terms, allowing the country to build up dollars for the purchase, rather than requiring about $500m every month to pay for imports.

Currency traders have been sceptical of its effectiveness though, saying it amounts to postponing demand.

“It is still not lost on us that it is a stopgap measure, whichever way you look at it,” said a senior foreign exchange trader at a commercial bank.

The Kenyan shilling has remained under sustained pressure from the dollar, though the rate of depreciation has slowed in recent months, defying an April prediction by President William Ruto that it would strengthen significantly.

The oil import agreement, in which the government acts as the guarantor, has also been partly blamed by government critics for contributing to a surge in retail prices of petrol.

A litre of petrol is selling for 211-shillings (R25.763), up from 160-shillings when Ruto assumed office a year ago. The government doubled the tax on fuel in July.

Government officials and ruling party legislators have defended the president from the criticism, saying the country was at the mercy of international oil prices, which have gone up in recent months.

The opposition has rejected the argument.

Reuters