Argentina opts for gradual oil price convergence

Argentina's crude oil prices will gradually fall into line with international levels under an emerging deal hammered out between producers, refiners, oil-producing provinces and labor unions, energy minister Juan José Aranguren said.

"We are working with oil-producing provinces and unions, and we will summon producers and refiners shortly to settle a new deal that will allow us to approach international prices," Aranguren said on 25 November. "I rule out an abrupt price adjustment."

An energy ministry official told Argus a final agreement could be unveiled at a 13 December Oil Day celebration that brings together senior industry executives and President Mauricio Macri.

At the upcoming Oil Day event, the government is also hoping to announce $5bn in private-sector investment commitments in exchange for new productivity goals with the unions, the ministry official said.

Argentina in recent years has maintained above-market domestic crude prices aimed at encouraging production, a policy that has had the unintended consequence of pressuring up retail fuel prices at a time of double-digit inflation. Local oil producers and labor unions have warned that a steep price cut would trigger job losses and bankruptcies.

Aranguren´s remarks indicating a policy of gradual price convergence came a few days after Canadian independent Madalena said its clients would buy crude at a 30pc discount to prevailing prices, a reduction that would effectively bring the artificially high prices into line with market levels. It was not immediately clear if the firm would maintain those prices in light of the new gradual accord.

Last week, Macri and Aranguren received oil-producing Neuquén province governor Omar Gutiérrez and Neuquén senator Guillermo Pereyra, who leads the most important oil workers union. They agreed to cut local prices gradually and adjust labor costs in order to maintain the royalties of producer provinces.