Argentina to release fuel prices in August despite local devaluation and global oil rises

By Luc Cohen

AIRES (Reuters) – Argentina will allow oil companies to fix freely their selling prices since the month of August, according to a Ministry of Energy official familiar with the plan, which could encourage investment in oil fields but with the risk of rising oil prices. In addition, the energy portfolio – whose management changed two weeks ago – is striving to set up an auction process for the natural gas market because it s & # 39; Expects this to lead to lower prices. said the official, under cover of anonymity because he was not allowed to speak publicly.

These measures are signs that President Mauricio Macri is going ahead with his pro-market reform plan. attracting investments that develop their huge reserves of unconventional crude oil, even at a time when world oil prices are rising and a steep devaluation of the local currency is pushing for more interventionist official policies.

The measures will also bring relief to the South American country's energy sector. Price controls have reduced the profit margins of the refineries and even led one of them to decide to suspend its operations.

The Macri Liberal government had released fuel prices last year, as part of its plan to remove state controls that ruled the Argentine economy. But his administration overturned in May due to a sharp depreciation of the domestic peso.

The sudden devaluation shook local markets and led Macri to seek financial badistance from the International Monetary Fund (IMF).

The agreement that the government signed in May with the country's three largest oil companies – the state YPF, Shell and Pan American Energy also set the price of local crude at $ 68 per barrel, about $ 10 less than the Brent value, to mitigate the impact of the rate freeze on refiners.

The official explained that by releasing retail prices, the government is betting that companies limit their increases to avoid losing customers to their competitors, while the freezing of oil prices would encourage more sales. investments in local drilling that would reduce imports.

Price control is useless, "the official said.

The government and oil companies changed their agreement last month to allow increases of 5 percent in June and 3 percent in Until now, it was unclear what would happen in August

Despite these increases, three sources in the oil industry recently told Reuters that they do not know what would happen in August. were not far from having pbaded on to consumers the cost increases of crude oil.] Last month, global trader Trafigura announced the suspension of the activities of its refinery in the port city of Bahía Blanca, where it was producing 30 500 barrels a day, "because of the mismatch between fuel prices and production costs. import. "

An industry source told Reuters its frustration with the limitation of price hikes.

" The adjustment to be made in gasoline prices does not make any difference. is not 3%, it is 45 percent, "said the source, who asked not to be identified in order to speak freely.

IMPULSION OF THE DECEASED COW

The end of the price limits sales are likely exasperating consumers.They are already outraged by the government because of the collapse of the peso this year and inflation that currently stands at 25% per annum, well above

But the government is betting that oil companies do not dare to transfer all their cost increases to consumers for fear that their sales will collapse. domestic oil prices would be good news for oil companies res

L & # 39;. hope is to stimulate & # 39; foreign investment, & # 39; a major goal Macri. Argentina has the world's second largest reserves of unconventional natural gas and unconventional crude oil, mainly in the mbadive Vaca Muerta deposit in Patagonia.

But the country faces strong competition to attract billions of dollars what you need to develop these resources. Oil production drops to its lowest level in decades.

The outlook is more encouraging for natural gas. The increase in production at Vaca Muerta helped boost the country's output by 3.4% year-on-year in the first quarter of 2018, according to data from the Ministry of Energy

"It begins to be gas in Argentina, "said As a result, the government will create an auction process for wholesale customers to launch a bid on the open market in order to obtain their supply of natural gas for the months of low demand in the austral summer, explained the manager.

The plan aims to gradually let the current system of fixed contracts fall, in a move that the authorities hope will lead to lower prices.

The auction could start in September or October and cover up to 70%. Percentage of wholesale supplies for March or April 2019, the source said that

Argentina would also start exporting gas to Chile in the fourth quarter of this year, due to the increase in the production of Vaca Muerta.

However, the third largest economy in Latin America will still have to import liquefied natural gas (LNG) to meet its local demand during the winter months.

(1965) Maximiliano Rizzi