Argentina eases caps on fuel, crude prices

Argentina authorized a 5pc increase in retail motor fuel prices as it continues to dismantle a 90-day oil price freeze that was imposed in August.

The increase also includes an effective 5pc increase in the domestic crude price, because the energy secretariat simultaneously authorized a weaker exchange rate that refiners must apply to pay producers of 51.77 pesos per US dollar.

As part of the initial freeze, domestic crude sales between producers and refiners must still be conducted at the same price that had been agreed before 9 August, referencing a Brent price of $59/bl. By modifying the underlying currency exchange rate, it assures producers will receive more money for their production.

The increase at the pump was authorized "with the objective of cushioning the impact" of ending the price freeze as well as "preventing eventual shortage problems that might take place," the energy secretariat said.

Oil firms have been warning that the freeze that is set to expire on 13 November has kept pump prices around 20pc below where they should be considering the peso's depreciation and annual inflation that exceeds 50pc.

This is not the first time the government has authorized a price increase in the middle of the 90-day freeze. In mid-September, the government approved a 4pc retail price hike along with an effective 5.58pc increase in the domestic crude price through the exchange rate following a sharp rise in international crude prices triggered by the 14 September attacks on Saudi oil installations.

Earlier in September, the government also narrowed the scope of the freeze by excluding the wholesale market.

Oil sector executives say the freeze is further harming the investment climate and labor unions have warned of layoffs.

The outgoing government of president Mauricio Macri imposed the freeze on fuel and crude prices on 16 August following a sharp depreciation of the peso sparked by an electoral primary that gave opposition presidential candidate, Alberto Fernandez, a substantial lead. Fernandez went on to win the presidential election on 27 October, and will take office in December.

His vice president, former president Cristina Fernandez de Kirchner, ran a populist administration known for extensive economic intervention. Under her watch, the government seized control of oil company YPF from Spain's Repsol in 2012.

source: Argus Media