Abstract: It has been argued variously that the retail petroleum prices in Kenya don’t closely reflect the true costs of product supply. In particular, petroleum prices do not seem to change in tandem with shocks in the international crude oil prices. The general objective of this study was to investigate the determinants of consumer oil prices in Kenya. Specifically, the study sought; to determine the effect of crude oil cost on consumer oil prices in Kenya; to examine the effect of oil distribution costs on consumer oil prices in Kenya; and to establish the effect of oil taxes on consumer oil prices in Kenya. The study was anchored on the cost push theory and demand pull theory, based on secondary data and applied a descriptive research design. Data was collected from 2007 to 2016 on monthly basis. The data was analyzed using Eviews statistical software. The study tested for unit root and cointegration. The study used the Vector Autoregressive (VAR) and Vector Error correction (VECM) models to correct the cointegration error. The short run VECM model found a positive and significant relationship between oil distribution costs and consumer oil prices with a one period lag. However, crude oil costs and oil taxes were found to be insignificant. In the long run, the study concluded that oil import prices have a significant pass-through effect into consumer oil prices. The study recommends the need to allow for competitive oil market where forces of demand and supply determine the oil prices without government intervention.
Keywords: Consumer Price Index (CPI), Crude Oil Costs, Oil Distribution Costs, Oil Taxes, Pass-Through Effect.
Title: Determinants of Consumer Oil Prices in Kenya
Author: Justus R. Barasa
International Journal of Thesis Projects and Dissertations (IJTPD)
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