The impact of crude oil prices on petroleum pump prices in Kenya: A case study of Nairobi

Abstract

This study attempts to identify the key factors that determine petroleum pump prices in Nairobi which accounts for half of Kenya's total consumption. The study examines the time series data of crude oil prices both domestic and international and a number of other covariates; including exchange rate, lagged price of crude oil and gross domestic product. Based on the possibility of existence of co integration between pump and international crude oil prices, both domestic pump and international crude oil prices were modeled in first difference with an error correction term added to reflect the long-term relationship. The study concludes that the two sets of prices follow long term trends.