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Final Mexican fuel price caps fall

30 Nov 2017 21:26 GMT
Final Mexican fuel price caps fall

Mexico City, 30 November (Argus) — Mexico's final government-directed gasoline and diesel price caps were removed today to little fanfare, but change may be looming as new wholesale importers slowly enter the market.

Starting at midnight last night, fuel retailers all over Mexico were able to set their own prices — the final step in a year-long liberalization process that was accelerated by one month. But the scarcity of independent imports has meant that state-run Pemex remains the sole supplier for most of the country's 11,700 retail stations.

New retailers — from BP and Total to Mexican brands such as Hidrosina or La Gas — have all been distributing Pemex products, at times blended with their own additives.

But the arrival of new sources of wholesale imports through companies such as US independent refiner Andeavor (previously known as Tesoro), which in October was the first company to make large-scale imports, will offer retailers an alternative.

Energy regulator CRE said today that ExxonMobil will begin fuel imports next week, commodity firm Glencore has plans to start imports in February 2018 and Valero towards the end of next year.

"We're beginning to see a wholesale market, which is very important, so that we don't only have competition in the last-mile of delivery," said head CRE commissioner Guillermo Ignacio Garcia Alcocer.

The CRE previously established that a sufficient level of competition would be reached when at least 30pc of the fuel sold in a region comes from a company other than Pemex. But large-scale imports also rely on the construction of costly new infrastructure. The open season program to open up some of Pemex's infrastructure to third parties has been indefinitely postponed, now running over six months late.

"As long as we don't have those wholesale companies competing in all regions, Pemex's wholesale prices will remain regulated," Alcocer said.

Investment in fuel storage is promising, but CRE has approved only three pipeline projects, two of which are located in central Mexico. Until more pipelines are built and Pemex infrastructure made available, rail is one of the best options, outside of the northern border, which is easily accessible by trucks.

Today was the fourth and final round of price liberalization. Gasoline and diesel prices have remained stable after market-driven prices were introduced in the north of Mexico earlier this year.

The finance secretary's adjustment formula on taxes to prevent fuel price spikes will also contribute to lower price volatility until the end of 2018.