Argentina abandons freeze on fuel, crude prices

  • : Crude oil, Oil products
  • 19/09/18

Argentina has abruptly scrapped a 90-day oil price freeze by authorizing a 4pc hike at the pumps, along with an effective 5.58pc increase in the domestic crude price.

The price adjustments that take effect tomorrow follow a sharp rise in international crude prices triggered by the 14 September attacks on key Saudi oil installations.

The attack and the subsequent increase in global prices "led to an unforeseen situation and a significant increase in prices that inevitably impact the production and sale as well as the normal supply of fuel in our country," the energy secretariat said today.

The 4pc increase aligns with August inflation as reported by the official Indec statistics agency.

As part of the outgoing freeze, domestic crude sales between producers and refiners must be conducted at the same price that had been agreed before 9 August, setting as a reference a Brent price of $59/bl.

Although that reference price remains the same, the currency exchange rate that will be used as a reference rises by 5.58pc, the secretariat said.

When the freeze was first implemented on 16 August, the exchange rate was set at 45.19 pesos per US dollar, which was increased earlier this month to Ps46.69/$ in addition to a 30-day subsidy of Ps2.81/$ for oil producers.

The exchange rate applied in the domestic crude transactions remains far below the current wholesale exchange rate of Ps56.52/$.

The government of President Mauricio Macri imposed the freeze on fuel and crude prices following a sharp depreciation of the peso after the main opposition presidential candidate, Alberto Fernandez, obtained a larger-than-expected advantage in a national primary on 11 August.

Fernandez is running with former president Cristina Fernandez de Kirchner as his vice presidential candidate. There is broad fear among investors that if he wins the 27 October election, Argentina will return to interventionist economic policies. The running mates are not related.

Earlier this month, the government narrowed the scope of the fuel price freeze to exclude the wholesale market, effectively leaving 47pc of the total market out of the freeze.

Despite these concessions, oil sector executives had been warning the freeze was becoming untenable and would harm production and investment. Union leaders had also warned the freeze would cause layoffs.

The domestic oil price adjustments coincide with growing concern that the International Monetary Fund (IMF) may not release its latest $5.4bn tranche on a record $57bn standby loan to the government. The loan agreement has come under criticism from Fernandez.

Argentina's decision to raise domestic fuel prices in response to the global price spike is a departure from the regional response. Brazil and Mexico are keeping prices steady for now.

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