Abstract

The volatility of petroleum prices in Kenya compels an analysis into the fundamental causes of the recurrent fluctuations. Movements in oil production from important importing sources play a role in determining petroleum prices in importing countries. However, no clear model exists that explains how these changes in oil output affect the price of gasoline in Kenya. Additionally, there is no framework that explains how long these shocks last in the Kenyan market. The present situation has opened the door for a research project designed to comprehend the effects of changes in oil output from the United Arab Emirates on gasoline costs in Kenya. The two main goals of the study are to first determine how monthly oil output changes in the UAE affect Kenyan gasoline prices between 2017 and 2020, and then to determine how long the effects of oil production shocks from the UAE last in the Kenyan gasoline market. In order to determine whether monthly variations in oil output from the United Arab Emirates have an impact on Kenya's gasoline prices and whether oil production shocks from the United Arab Emirates have lasting effects on the Kenyan gasoline market, the research is set up as a hypothesis-driven investigation. The study made use of concepts from the Real Business Cycle theory and the conventional notion of market self-adjustments. The analysis relied on secondary data which were collected from various sources including OPEC, EIA, Central Bank of Kenya and World Bank’s websites. The data were processed using the R programming language. After analysis, a model was constructed, enabling the derivation of conclusions and subsequent recommendations.