Don’t worry about anything!Argentina’s new president plans to eliminate government intervention and promote oil market liberalization
Zhao Hao, Financial Associated Press
2023-12-29 03:56:54
Financial Associated Press, December 29 (Editor Zhao Hao) According to media reports on Thursday, Argentina’s new President Javier Milei plans to promote crude oil exports by relaxing customs restrictions to eliminate decades of government intervention in the oil industry, with the help of international market forces to adjust its domestic fuel prices.
Yesterday, Milais submitted a general reform bill to the Argentine Congress, aiming to further relax control over the Argentine economy. It is reported that the bill contains a total of 664 articles, as many as 350 pages, and is expected to be discussed at a special session in January next year. There is a chapter dedicated to the country’s current oil industry.
Milley seeks to pass a general reform bill to replace Argentina’s rules that have given priority to ensuring domestic fuel supplies since the 1960s. These rules give refiners the right of first refusal on export cargoes and allow the government to intervene in the pricing of crude oil and gasoline. Although the rules seem to have good intentions, they actually cause many problems.
Argentina’s oil production hit a record this year, but the country is experiencing its worst fuel shortage in years. Previously, the Argentine government set the local price of a barrel of oil at US$56 (commonly known as the “Creole oil barrel” policy), which is far lower than the international crude oil price of about US$86 per barrel.
The government originally wanted to use this pricing to force oil producers to sell crude oil to local refineries at prices well below market prices. But the result is that producers are more willing to export crude oil to earn the price difference. In addition, after the government froze gasoline prices, people also purchased and hoarded fuel in large quantities, causing a supply and demand imbalance, resulting in a shortage of both crude oil and fuel in Argentina.
The combination of these factors became one of the reasons why Milley, the ultra-liberal economist, was ultimately elected. In this regard, Milai proposed in the general reform bill to liberalize the overseas sales of fuel and at the same time deprive the executive branch of the power to intervene and fix Argentina’s domestic fuel prices.
Earlier this month, Argentina’s Energy Minister Eduardo Rodriguez said in an interview that fuel prices needed to be allowed to fluctuate freely without indirect government control through the YPF. The Argentine government holds a 51% stake in national oil company YPF SA.
Juan Jose Carbajales, an energy consultant who once served as Argentina’s deputy minister for oil and gas, told the media that Milai wants to align domestic fuel prices with international energy values and that he intends to cancel these rules, which would mean a historic break with Argentina’s century-old tradition.
In addition, these old rules have also led to low domestic oil prices in Argentina and hindered oil and gas exploration in the “Vaca Muerta” basin. In October this year, crude oil production in Neuquén, the largest oil and gas producing province in Argentina where the Xiniu Basin is located, was 354,200 barrels per day, a record high. Investors have also shown interest in the export and midstream markets.
Analysts believe that Milley’s proposals will face strong opposition in Congress because these ideas will “tear apart the country’s existing decision-making structure.” But if passed, it will benefit drillers including YPF SA, Chevron, and Shell.
At the same time, if the production of oil and natural gas extraction increases, Argentina is expected to transform from an energy importer to a country with a small amount of energy exports in the near future, which can help its economic recovery to a certain extent.
Milley may move ahead of schedule to “informally” liberalize the oil market during the legislative debate, according to two people familiar with the matter.
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2023-12-28 19:56:54
