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George Ma
in
Stocks
May 12 11:06

Argentina to fix the price of oil at $45 per barrel

The country decided to fight for the survival of the national oil shale industry with old school methods.
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Alberto Fernandez administration announced its intention to support the country's oil industry in a very radical way. A special decree will fix the oil price level at US$45 per barrel. The decree will remain in force until the end of 2021, and if prices on the world market stay above US$45 for 10 days, it will be suspended. At the same time, if world prices are below the threshold, export tax will be reduced.
"If we allow investment to fall, there is a risk that when prices rise again, we will not produce enough oil and gas," said Matthias Kulfas, the country's Production Development Minister, in justification of the plan.
News were positively received by Pluspetrol and Vista Oil & Gas, but in theory the government's decision should also apply to international companies such as Royal Dutch Shell, Exxon Mobil and ConocoPhillips - last year they increased their share in the development of the largest field Vaca Meurta (Dead Cow) in Patagonia.
For refineries, the government's plans do not bode well. More than 50% of Argentina's gasoline and diesel market is controlled by the state firm YPF, while the government, fearing public discontent and rising inflation, does not intend to allow higher prices for petroleum products. YPF together with Brazilian refiners Raizen and Pan American Energy tried to persuade oil-producing provincial authorities not to support the introduction of domestic oil prices and, according to some sources, promised them royalties based on prices at US$38 - US$42 per barrel regardless of the market situation. In the end, however, the victory was left to the oil producers, whose contributions largely fill the budgets of the provinces.
Experts note that in the long run fixing the minimum oil price is counterproductive and creates chaos in the supply chain. However, in light of the impact of the Coronavirus pandemic and the short-term positive effect question this notion. Out of the 556,000 barrels per day Argentina produced last year, only 63,000 were exported, and the main market remains state-owned. With the quarantine measures introduced in mid-March, fuel demand in the country fell by almost 80 per cent, at least 3 major refineries actually stopped producing, stocks rose, as in the rest of the world. Experts are wondering how price fixation will stimulate production if there is no demand.
It is worth noting that for Argentina support of the oil industry is an important issue - with the development of oil shale, the country, which in the past was an exporter of oil and gas, began to regain its energy independence. Last year, for the first time in many years, Argentina exported light oil of Medanito grade, which was produced at Vaca Muerta. The example of the shale revolution in the U.S. is stirring the minds of the Argentinean leadership - the Vaca Muerta field may contain more hydrocarbons than Perm in the U.S. and could become a significant revenue growth driver for a country that is close to default for the ninth time.