Fuel price lag saps fuel supply in Argentina

Small towns in Argentina are experiencing sporadic fuel shortages amid a drop in supply from certain refineries that are reluctant to sell at current below-market prices.

The shortages are particularly acute in non-branded retail stations, which are largely present in smaller towns.

Around 720 of the country's 4,800 fuel retailers are not branded. In addition, some 300 retailers that operate under the local brand of Oil Combustibles, which is currently in bankruptcy proceedings, are suffering some of the same woes as the non-branded stations.

Although they are receiving a more steady supply, branded retail stations are experiencing supply restrictions as well, according to retail industry representatives.

"Companies are generally only supplying a quantity that is equal to the average a service station sold over the last three months," explained Gabriel Bornoroni, head of the FECAC industry group of service stations in Argentina's central provinces.

The exception to the quotas is state-controlled YPF, he says.

"It is not as if stations are being left empty, but rather the supply is coming slower than normal," explained Guillermo Lego, manager of the Cecha confederation that represents 90pc of Argentina's retail service stations.

The problem is most acutely felt from central Cordoba province toward the north of the country and is barely perceptible in Buenos Aires, said Lego.

The shortfalls come after Argentina's new energy minister made it clear that previously existing agreements to check price increases are no longer in effect, and companies are adjusting prices to make up for a depreciation of the local currency as well as around 25pc annual inflation.

"Prices are really increasing daily now," Lego said.

Because of the price freezes and agreements, retailers had said prices at the pump were around 25-30pc lower than they should have been.

"I don't think they'll be increasing 30pc overnight but we have to see where this stops," Lego said.

Representatives of the retail fuel sector will meet today with energy minister Javier Iguacel to express their concerns about the new market dynamics.

"We want to tell him that he can come to any agreement he wants with oil companies, we just want the market to be fully supplied," Bornoroni said.

If not for government intervention, fuel prices would be as much as 29pc higher for diesel and 25pc for gasoline, according to FECAC, based on retail prices at the beginning of July, taking into account the currency depreciation and inflation.

Even though fuel prices have not increased in line with other goods, sales are still down. Gasoline sales declined 12.2pc in May, on the year, to 691,786m3 (140,142 b/d), while diesel sales dropped 15.3pc to 542,597m3. Compressed natural gas (CNG) sales narrowed 12pc to 170.4mn m3, according to FECAC data.

A drought that affected Argentina's farmlands this year has eroded diesel demand in rural areas.

YPF accounted for 54.5pc of fuel sales in May, followed by Shell with 19.3pc and Axion with 11.7pc. Axion is controlled by Bridas, a holding company between Chinese state-owned CNOOC and the local Bulgheroni family.