Analyzing surge in gasoline prices and Rwanda’s comparative advantage in the region

On 5 April 2024 at 01:53

The recent increase in gasoline and diesel prices has caught many off-guard, following a six-month period of stability. This uptick is directly linked to global oil market dynamics, which have seen considerable fluctuations.

Specifically, in Rwanda, the fallout has been a 127 Rwandan Franc hike in gasoline prices per liter, with diesel experiencing a 52 Franc increase. This adjustment pegs the new gasoline price at 1,764 Rwandan Francs per liter and diesel at 1,684 Rwandan Francs.

Global market dynamics

The global oil market has been anything but predictable. On January 5, 2024, a barrel of gasoline was valued at $73.8, which slightly dipped to $72.7 by February 5. However, the following months saw a steady climb, with March recording prices at $78.15, escalating to $86.7 in the present day.

Some regions are now facing even steeper prices, with a barrel costing up to $89.35, and the trend suggests a further increase could be imminent.

A pivotal meeting of the Organization of the Petroleum Exporting Countries (OPEC) ministers, representing key oil-producing nations, was convened this week to deliberate on potential measures to temper the soaring prices.

Despite the urgent need for solutions, the assembly concluded without any decisive action, opting to stick with current policies. This decision hints at a probable continuation of the upward price trajectory.

Previously, OPEC had decided to reduce oil production by at least 2.2 million barrels per day until June of this year, in addition to a previous decision in 2022 to cut extraction by 3.66 million barrels per day. These measures were explained as efforts to prevent market instability. However, ongoing tensions with the United States and the Ukraine-Russia conflict add layers of complexity to the situation.

The Ukraine-Russia conflict

The conflict between Ukraine and Russia exacerbates the oil market’s instability. Since January, Ukraine has initiated multiple strikes on Russian oil refineries using drones, rendering about 14% of Russia’s refinery capacity inoperative.

The latest of these attacks targeted a refinery in Tatarstan, prompting Russia to halt oil product exports to prioritize domestic needs, further squeezing global supply.

Moreover, the Houthi rebels’ assaults in the Red Sea have jeopardized crucial shipping lanes, affecting countries region-wide, including Rwanda.

Rwanda’s competitive edge

Among the five East African Community (EAC) countries, Rwanda has the lowest fuel prices in the region. For example, a liter of gasoline in Tanzania costs $1.26, while diesel is at $1.24. In Uganda, gasoline is at $1.43 and diesel at $1.29. In Burundi, gasoline costs $1.52 and diesel $1.48, while in Kenya, the prices are $1.53 for gasoline and $1.49 for diesel, respectively.

As of April 1, the price of gasoline in Rwanda was equivalent to $1.27 per liter, the same as diesel, showcasing Rwanda’s relatively lower fuel prices within the region.

Annually, Rwanda consumes over 2.835 billion liters of diesel and approximately 181.6 million liters of gasoline.

The higher consumption of diesel is attributed to its extensive use in public transportation, industrial machinery, construction, agriculture, and other sectors.