Page 4 - LatAmOil Week 20 2020

LatAmOil COMMENTARY LatAmOil
The minimum reference price is likely to help YPF’s uptream operations more than its downstream units (Photo: YPF)
Artificial price support
Buenos Aires has adopted a minimum reference price of $45 per barrel for Medanito crude, in a move that enjoys broad domestic support
WHAT:
Argentina’s government has set an above-market price floor of $45 per barrel for domestic production.
WHY:
The new policy is designed to protect local producers from recent price fluctuations.
WHAT NEXT:
YPF, with its heavy debt load, may join privately owned refiners in chafing under the requirement to pay more for feedstock.
ARGENTINA’S government has officially intro- duced a minimum reference price for crude oil, in a bid to protect domestic producers against fluctuations in world energy markets.
The new policy took effect on May 19, when Buenos Aires published a decree setting an artificially high price floor of $45 per barrel for the grade of light sweet crude known as Med- anito, also known as the criollo barrel. Under the decree, prices for other types of oil will be adjusted in line with quality and point of ori- gin; presumably, though, they will also be above world market levels.
The new policy states that the minimum reference price will be subject to revision on a quarterly basis. It also notes that the new pricing policy will remain in place until the end of the year, unless Brent crude prices top the level of $45 per barrel level for 10 consecutive days. (As of press time, Brent was trading at about $35 per barrel, up from a low point of less than $20 in late April.)
In that event, it says, the government will
begin to lift barriers to the sale of oil and fuel to foreign buyers but will also work gradually to reinstate export tariffs. Tariffs will return to the previous level of 8% once Brent crude prices top $60 per barrel, it states.
Protective measures
The minimum reference price policy is meant to protect Argentina’s domestic oil industry by ensuring that domestic sales remain profitable for producers.
It does so not only by establishing a price floor but also by requiring Argentinian refiners to buy locally produced feedstock – and by sus- pending planned increases in fuel tax rates until October 1, in the hope that domestic demand for petroleum products will improve if pump prices do not rise.
In exchange for these protections, Buenos
Aires is requiring upstream operators to carry
out their 2020 investment programmes in full, without making any budget cuts, and to main-
tain production at 2019 levels. 
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w w w . N E W S B A S E . c o m Week 20 21•May•2020