Page 13 - LatAmOil Week 16 2020

LatAmOil ARGENTINA LatAmOil
Domrstic fuel prices will remain at March 31 levels (Photo: File)
Argentina hopes minimum reference price will protect domestic oil sector
ARGENTINA’S government is reportedly mulling a proposal to establish an artificially high floor for domestic crude oil prices.
According to a draft presidential decree cited by Platts, Buenos Aires may set the minimum reference price for Medanito, a type of light crude oil extracted from fields in Neuquen Prov- ince, at $45 per barrel. Under this decree, the ref- erence price would take effect retroactively, with a start date of April 1, and remain in force until December 31.
Typically, Argentina has used Brent, the main European benchmark crude, as its point of ref- erence for domestic crude prices. But world oil markets have been so bearish in recent weeks that Brent has fallen below $30 per barrel. This is down by more than 50% on the prices prevail- ing at the beginning of the year, and it is certainly not high enough to make Argentina’s domestic oil industry profitable.
At the South America country’s conven- tional oilfields, break-even prices average more than $30 per barrels. Unconventional fields in the Vaca Muerta shale formation are even more expensive to develop, with break-even prices of around $50.
As such, the proposed above-market mini- mum reference price would help producers by requiring Argentinian refiners to pay at least $45 per barrel for domestically produced crude. This is higher than the current market rates, even if it does not match some local operators’ recent demands for $54 per barrel.
In return for this assistance, the govern- ment would require producers to maintain their operations at a certain level. According to Platts, the decree said Buenos Aires expected oil
companies to “make their best efforts to sustain the activity and production levels registered during the year 2019, trying to maintain the sources of work and the contracts in force with the regional service companies.”
At the same time, the plan calls on refiners to buy all of their feedstock domestically and to import only as much petroleum products as necessary to cover demand. Additionally, it pro- vides for domestic fuel prices to remain at the levels prevailing on March 31.
Platts did not say when Argentina’s presi- dential administration might decide whether to enact or revise the draft decree.
Heading for export?
If the proposal is adopted, it could create dif- ficulties in the South American country’s oil industry.
Argentina has seen petroleum product con- sumption drop precipitously, by as much as 80% in some areas, since March 20, when the government imposed a nationwide lockdown. Additionally, the country’s fuel inventories are already full. Indeed, Argus Media reported last week that Raizen, a joint venture between Royal Dutch Shell (UK/Netherlands) and Cosan (Bra- zil), had suspended operations at its 110,000 bpd refinery in Buenos Aires because demand levels were low and stock levels were high.
As such, if Argentinian producers continue to pump as much oil as they did last year, they may have difficulty selling it, at least in the short term, since local refiners will not need it. They may therefore seek to export surplus barrels. If they do, they may have trouble finding buyers, given the current global supply glut. ™
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