OREANDA-NEWS. November 21, 2016. Argentina has effectively slashed its domestic crude prices to bring them into line with international levels, toppling a longstanding upstream subsidy that was aimed at stimulating domestic production.

Oil refiners recently informed producers they will buy crude at a 30pc discount to prevailing prices, industry participants say.

The price for 34°API Medanito crude had been fixed at \\$67.5/bl, while heavier Escalante fetched \\$54.9/bl until August, when gradual 2pc/month adjustments started taking effect for three months. The new discount would bring the prices to around \\$44/bl for Medanito and \\$36/bl for Escalante, respectively, closely aligned with comparable international grades.

US crude Light Louisiana Sweet (LLS), which is slightly lighter than Medanito, was previously purchased by Argentinian refiner Oil Combustibles amid more attractive import prices. December LLS was assessed at \\$46.48/bl today.

October LLS, which would arrive in Argentina in November, averaged \\$46.71/bl during the trade month, bringing it to a premium to the new Medanito price of about \\$2.7/bl before transportation costs. The new spread between Medanito and LLS on an fob basis is now more representative of global trends.

Canadian independent Madalena Energy, which operates in four provinces of Argentina, has been advised by the refineries that the oil price it will receive for November and December production will be reduced by around 30pc, the company reported in a note to the Canadian Stock Exchange yesterday.

Madalena said it received an average price during the third quarter of \\$61.65/bl.

The artificially high crude prices were imposed by the previous administration of former president Cristina Fernandez de Kirchner as a way to stimulate conventional and unconventional flows.

But the policy helped to drive up retail fuel prices, aggravating double-digit inflation. The above-market prices also drove refiners to buy more crude abroad, and fewer spot Escalante sales were made in global waterborne markets. Market participants say Argentina has imported about 12mn bl of light sweet west African crude, including Nigerian Bonny Light, Forcados and Escravos, over the last two years.

Argentina energy ministry said industry conversations are taking place, but no decision has been made.

Argentinian state-controlled YPF has more than 50pc of the country's refining capacity. Other large refiners are Axion, controlled by Bridas, a holding between Chinese state-owned CNOOC and the local Bulgheroni family; Shell; and Argentina's Pampa Energ?a, which recently acquired the local assets of Brazilian state-controlled Petrobras. Together the four refiners represent 80pc of refining market share. YPF, Bridas, which participates in BP-controlled Pan American Energy, and Pampa are also important crude producers in Argentina.

Argentina's many independent oil producers and provincial officials have warned that cutting the price subsidy would reduce industry employment and even bankrupt some smaller upstream companies.

Madalena noted in its regulatory filing that it "is assessing the impact of this price reduction on its business operations. However, one of the parties with whom the Company was in discussion regarding the sale of certain Madalena assets has now withdrawn from those discussions, citing this oil price reduction."