Mexico's government could bring back fuel excise tax (IEPS) breaks if international prices for gasoline and diesel rise sharply on the back of an escalating conflict between US and Israeli forces and Iran, President Claudia Sheinbaum said.
Prices for US benchmark WTI crude on Monday rose past $70/bl, up from $68/bl on 27 February, after ayatollah Ali Khamenei, Iran's supreme leader since 1989, was killed in the US-Israeli attack on Iran on 28 February. Oil market sentiment changed after explosive projectiles hit three ships near the strait of Hormuz and after US president Donald Trump announced strikes on Iran would continue.
The market pressures are likely to drive up prices of gasoline and diesel delivered fob to Mexico's east coast. Mexico imports about 40pc of its gasoline and diesel supply, making these prices influential to domestic fuel prices.
Prices of gasoline delivered to Mexico on 27 February rose by 10pc to $2.02/USG, whereas delivered diesel prices climbed by 4pc to $2.32/USG on a sharp increase in refined product prices as crude values moved higher./ Some market sources expected the conflict in Iran to intensify over the weekend, but price increases at the end of February were unrelated.
In January, Mexican state-owned Pemex — the benchmark for prices in the Mexican market — decided to hold wholesale gasoline prices steady despite international price hikes. Its signal came as the government sought to avoid higher fuel prices as a way to curb inflationary pressures following the yearly fuel excise tax increase.
The government's Ps24/l price cap on regular gasoline further reinforces Pemex's role as the market's main price stabilizer. With the cap in place, the company has limited room to pass through higher tax costs without triggering retail price adjustments.
But if international prices for road fuels keep trending upward, Mexico can reintroduce its IEPS deductions, Sheinbaum said on Monday during her daily morning press conference. Mexico's finance ministry uses a two-week window to determine the deductions based on international prices, but the ministry on 27 February held the deductions from the fuel excise tax (IEPS) for regular gasoline and diesel at zero for a 45th consecutive week.
If Mexico uses the IEPS deductions while global markets recover from the initial shock and find different ways to move around crude, Mexico's gasoline price cap could stay in place, according to energy analysts.
