Rising crude oil around the world adds pressure to Argentina’s naphtha price

Inflation is one of the biggest problems facing the Alberto Fernández government these days. While a considerable drop in the consumer price index was achieved in 2020 (36.1% throughout the year, almost 18 percentage points less than in 2019), in the last quarter and in January 2021, there has been a particularly worrying pronounced acceleration over the past year. with elections.

One of the factors that determines the price the most is fuel. The increase in gasoline and diesel explain a good part of the increases in Argentina’s economy, and that is why the government is trying to control them. So far, without much success.

At the end of January, for example, he postponed until March 12 the application of fuel taxes that were supposed to operate on the first day of the following month. He did something similar in December, when he extended the impact of the same taxes by 45 days. In both cases, with the idea of ​​avoiding greater pressure on sales values.

This was acknowledged by the Ministry of Energy itself – which has been dependent on the national economy since last year – in both decrees, arguing that the decision was due to “current circumstances and the necessary stabilization of prices “.

But not only does the fiscal component matter, but oil is a critical factor in the composition of the price of gasoline. And this is not a minor problem.

The crisis that caused the collapse in the value of oil has already cleared up and Brent, which serves as a benchmark in the region, is trading above $ 64 a barrel, more than triple that of in April, while in global isolation for the coronavirus pandemic hit a low of $ 18.38.

In the past 30 days alone, Brent futures contracts listed on the London Stock Exchange have risen 17% from $ 54.65 to $ 64 on Wednesday, February 17. These are the same values ​​at which crude oil was sold in December 2019, before the Covid-19 crisis.

Of the total price of fuel at the pump, between 40 and 45 percent correspond to taxes. Moreover, just over 35 percent can be explained by the price of oil. In this way, each increase in crude oil impacts one third of the value of the product, without taxes.

The only relief, for now, is the dollar (the official dollar), which with the exchange restrictions has not copied the volatility of the parallel market. So far in 2021, the US currency, whose fluctuations hit oil companies with regard to imported inputs, has risen 4.5%, almost in line with inflation, which was 4% in January.

Taxes

The Liquid Fuel Tax (ICL) and Carbon Dioxide Tax (IDC) are updated – by a law dating from the time when Juan José Aranguren was in charge of energy – in March, June, September and December, using the advance as the benchmark of the consumer price index, with a lag of three months.

With the recession resulting from the quarantine, inflation was brought under control until mid-2020, so the transfer to prices was irrelevant and was offset by the drop in value during these months. petrol.

The problem came later when the increases in the cost of living for the latter part of the year had to be applied.

Thus, gasoline increased almost every month from August to the end of last week.

The super at YPF stations fell from 59.49 to 82.8, 39.1 percent.

In the first 45 days of this year alone, there were six increases ranging between 1 and 3.5%, totaling 12.3%.

On the other hand, it should be kept in mind that increases in biofuels are planned for March 1: bioethanol will be adjusted by nearly 2% and biodiesel, 3.5. These adjustments will also have an impact on the pumps.

YPF and the boomerang

In the Economics portfolio headed by Martín Guzmán, the problem of the inflationary impact of the rise in gasoline is in opposition with YPF and the need to rebuild its financial structure.

Almost eight in 10 pesos that enter the majority state-owned oil company come from the sale of fuel in the domestic market, which is why the freeze from late 2019 to August 2020 and the huge drop in sales during the quarantine (report a loss of 85 billion pesos for the second quarter alone) took a heavy toll on their accounts.

Guzmán’s objectives are focused on the gradual recovery of margins in order, with these revenues, to support YPF’s envisaged investment plan in the production segment.

However, every point where gasoline and diesel prices drop inoculates the price index, so the oil company’s rearranging of the equation is a dangerous boomerang for the government, which hopes to reach December. of this year with an increase in the cost of living not exceeding 30 percent. Something unthinkable for most private consultants.