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Argentina suspends crude price controls

26 Sep 2017, 4.01 pm GMT

Argentina suspends crude price controls

Buenos Aires, 26 September (Argus) — Argentina will suspend controls on domestic crude prices starting on 1 October, breaking with more than a decade of government intervention at the wellhead and the pump.

But the government left the door open to reinstate the price controls before year-end if the bottom falls out of benchmark Brent.

Argentina has long propped up the domestic oil price as a way to stimulate production and preserve jobs in the local oil industry.

A climb in the Brent price this month effectively aligned domestic prices with international levels, allowing the government to cancel an agreement that guaranteed a minimum price for Argentinian producers. The deal had been scheduled to expire at the end of this year.

"Argentina is already lined up with international prices, it will now be up to supply and demand to regulate fuel prices," energy minister Juan Jose Aranguren said late yesterday on the sidelines of an oil conference in the Argentinian capital.

"Imports will now be the maximum reference points, and exports the minimum," he explained.

Argentinian producers had been receiving a minimum of $55/bl for 34°API Medanito crude and $47/bl for heavier Escalante under the latest price agreement with the government.

The terms of that deal specified that if Brent stayed at or above $54/bl for 10 straight days, it would be canceled. If prices once again fell below those levels before the agreement expired on 31 December, the minimum prices would be restored.

For refiners in Argentina, the suspension of the crude price controls will force firms to be more in tune with what is going on internationally to obtain the best deal.

"What this does is bring another player onto the scene, the international trader," Pampa chief executive Marcelo Mindlin said of the new market-driven prices.

Argentina's largest refiner is state-controlled YPF, which has more than 50pc of the country's refining capacity, followed by Shell, Argentinian-Chinese Bridas unit Axion and local firms Oil and Pampa, which recently purchased the local assets of Brazil's state-controlled Petrobras.

YPF is also the country's largest crude producer, followed by BP-controlled Pan American Energy.

The suspension of the crude price controls means retail fuel prices will not undergo a government-mandated adjustment on 1 October as they did at the beginning of every quarter this year to reflect the depreciation of the local currency, crude production costs and the prices of biofuels that are blended into gasoline and diesel.

Steadier pump prices are a boon for the government of president Mauricio Macri that is facing critical midterm elections on 22 October.

Aranguren said pump prices are unlikely to spike in the near future.

"Fuel prices in Argentina are now aligned with the market," he said, warning the government's anti-trust agency will not hesitate to implement measures if it detects any retail price gouging.

The removal of price controls is consistent with the broad goals of the business-oriented Macri administration, which came into office in December 2015 with a promise to slash government intervention in the economy.

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