Determinants of pass-through of international oil prices to domestic consumer fuel prices: evidence from Uganda

Uganda, a land locked and net oil importing country, upward shift in the international oil price are normally matched with increase in the local consumer fuel prices. However, when there is a downward adjustment in the international oil price, local fuel prices tend to be sustained at the new revised high levels. This study sets out to examine key determinants of local consumer fuel prices influencing the oil price pass-through. We begin the market analysis by examining the level of market competition (degree of concentration), followed by a vector autoregressive and error correction model (ECM) model estimation techniques. Results indicate that there has been high concentration and market dominance by a few oil companies over the years. Findings also indicate that exchange rate, oil price and government duty are key in explaining oil price pass-through. The study recommends a legal framework to encourage new firms to come on board and existing small firms to increase their market share, reduce government duty and control exchange rate fluctuations.