Argentina scraps plan to cut domestic crude price

OREANDA-NEWS. August 18, 2016. Argentina's government pulled the plug on an agreement to trim artificially high domestic crude prices.

The government had hammered out the unofficial plan with local oil companies last week in exchange for a freeze on retail fuel prices that have accelerated since the start of 2016.

"The national government does not have in its agenda any type of decrease in the subsidy," said the governor of oil-producing Neuquen province, Omar Gutierrez, following a meeting yesterday with interior minister Rogelio Frigerio in Buenos Aires.

Senator Guillermo Pereyra, the leader of the key oil workers union in Neuquen, also took part in the meeting and confirmed the price will remain steady for now. He said the issue will be analyzed by the sector as a whole.

"A technical energy committee will be formed where the provincial government, producers, unions and the national government will participate," he said.

The deal to reduce the wellhead price by 2pc/month for the next three months would have narrowed the wide gap with international prices.

Producers of 34°API Medanito crude currently receive \\$67.5/bl from local refiners, while the heavier Escalante crude is pegged at \\$54.9/bl.

Argentina set above-market crude and natural gas prices to stimulate domestic production and forestall job losses.

The about-face took the oil industry by surprise, but distributors still plan to keep retail fuel prices steady through October.

But the price trends from the wellhead to the pump are hard to predict in Argentina.

"Refiners have two options considering their margins are so small: either they buy crude at a lower price or sell it at a higher price," an official at one of the country's top oil companies said.

If the domestic barrel price remains flat, the government could allow more crude imports.

In a sign of policy tensions, Frigerio had confirmed on Twitter that the higher price for crude would remain in effect, but later deleted that message. He was not immediately available for comment.