Argentina's retail fuel prices increased by 8pc today, one dimension of a broad agreement between the oil industry and the government to gradually cut the country's artificially high domestic crude price.
Under the terms of the agreement, local refiners will pay $59.4/bl for 34°API Medanito and $48.3/bl for 24°API Escalante this month.
The prices will then decrease gradually every month before reaching $55/bl and $47/bl, respectively, in July. That price would be applicable until the end of the year, when the terms of the agreement expire.
The deal also limits crude imports to times when there is a shortage in the local market.
All local refiners signed onto the deal, although a few Escalante producers representing some 10pc of the market declined to participate and vowed to continue discussions. Argentina exports much of its Escalante crude production because it is too heavy for most local refineries.
The price agreement will remain in place until the end of the year unless Brent prices fall below $45/bl for 10 consecutive days or the Argentinian peso depreciates more than 20pc, in which case it would have to be renegotiated.
Retail fuel prices will be allowed to rise in the first week of each quarter to reflect the depreciation of the peso, the cost of crude and price of biofuels.
The industry agreement seeks to bring order to a chaotic market environment with producers and refiners haggling over prices and many producers accepting prices that were closer to $50/bl.
The year-old government of President Mauricio Macri has been trying to gradually align prices with global levels and do away with a policy that kept local crude prices artificially high in an effort to boost production. The recovery of international crude prices in recent months has narrowed the gap, making the process easier to implement.
Last year, the government fixed the price for Medanito at $67.50/bl and Escalante at $54.90/bl until August, when 2pc/month adjustments began to take effect for three months.
But tensions between refiners and producers put the brakes on further decreases as the government did not allow another hike in pump prices that rose 31pc last year, short of annual inflation that clocked in at 41pc, according to the Buenos Aires municipal government.
That dynamic led to a sharp increase in imports as refiners often found it cheaper to buy fuel from abroad than purchase it locally.
Argentina imported 16,501 b/d of crude in the first 11 months of last year, a 251pc increase from January-November 2015, according to statistics from the energy ministry.
In the period, the country also imported 39,819 b/d of diesel, a 22pc increase from 2015, and 4,137 b/d of gasoline. Argentina did not register any gasoline imports last year.
