2023-11-05 10:51:00
Although during the weeks following the general elections, the economy seems to have entered a stage of tense calm, the conflict over fuel shortages burst onto the agenda and had a full impact on service stations throughout the country.
After a week in which long lines were seen at the pumps, a new increase of up to 10% was enabled for the sales price, which will have its effect on consumers’ pockets and will be reflected in the inflation rates of November and dicember.
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The lack of gasoline and diesel is explained for several reasons, but above all it raises a series of questions. Why did the shortage affect the entire country? What is the current situation of the sector? Why did prices increase? And above all: how are the values sold at service stations determined?
Gasoline: how the price is determined
Broadly speaking, fuel prices are made up of: the cost of crude oil, taxes, transportation and distribution, and the margin for refineries and service stations.
In Argentina, the price of liquid fuel – gasoline and diesel – is first determined in pesos at the pump. From there, a number of charges are deducted, such as taxes and freight, and thus the price per barrel at the refinery door is arrived at. That value, which today is around US$56 (at the official exchange rate), is what is usually called “criollo barrel”, a name that comes from another era, in which the Government dictated the price; Today it is done by agreement.
Oil companies updated prices in the early hours of Wednesday, November 1. (Photo: Juan Vargas/NA).
“The central point in determining the price is the international value of crude oil. Brent is at US$87, but you have an agreement for producers to sell at US$56 per barrel, which is the Creole barrel, which is negotiated between refineries, oil producers and the Government,” summarized Nicolás Arceo, director of the Economy and Energy consulting firm.
Here, a first decoupling is generated for the industry because oil companies sell in the local market at a value of US$56 per barrel, while the international price revolves around US$85. Whether due to exports that cannot be made or imports that are made to satisfy domestic demand, this gap generates a loss for a part of the business.
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This point is central to explaining one of the knots of the conflict of recent weeks. A context of greater demand in fuel consumption, added to the scheduled stops of the refining park, led to the need to import.
“Restrictions on access to the exchange market and/or alternative financing sources caused a delay in the import of fuel, generating growing supply problems that have worsened significantly in recent days,” detailed in its latest Economy and Energy report.
The shortages that were seen after the elections were generated because there was a peak in demand at the same time that two refineries were working at 50% of their capacity. (Photo: NA).
Despite the increase that reached the pumps this week, engineer and consultant Emilio Apud considered that the current price of fuel, which averages $300 for gasoline, still does not reflect all costs and highlighted that both the refining margin and the of the service stations is small.
“If there were no lower domestic price for a barrel, its value would be around 10% below the international cost: about US$80,” stated the former Secretary of Energy. And he calculated: “The delay is 30%. What is being imported is paid between $410 and $450 per liter. “We would have to reach a similar value, but I don’t think that will happen before the runoff.”
Export: exhaust valve to cover costs
Given the fuel shortages that were seen at the end of October, Massa threatened the oil companies with suspending exports that, precisely, are authorized by the Ministry of Energy: they can only be sold abroad when internal demand is completely satisfied.
Read also: One week after the conflict over gasoline, the shortage continues in the interior of the country
Fuel exports, Apud explained, are a kind of “escape valve” for the sector to offset costs. “All the volume of oil that is not required for the domestic market is released for export with a low retention of 8%. Thus, they place the barrel abroad for about US$80. The exportable balance is important, since 660,000 barrels are produced per day against the 500,000 that are consumed internally. That allows them to keep going, but in this industry that is not enough because large investments are needed,” he said.
Sergio Massa’s message in the midst of the lack of fuel: “We will not allow them to harm Argentines” (Photo: Ministry of Economy).
To encourage greater fuel exports, the Executive established a special exchange rate so that a part of the foreign currency that comes in from fuel sales abroad is settled at the price of the financial dollar (CCL), which is worth more than double the official one. .
“The differential dollars allowed companies to compensate a little for the distance between the Creole barrel and the international price, but the condition of this apparent win-win (because the State reinforces reserves) was to keep fuel prices frozen for the gas stations. service. However, in the wholesale channel the price continued to rise and the gap was more or less 30%. For this reason, demand moved to the retail market, which led to shortages in the interior of the country,” summarized Alejandro Einstoss, researcher at IIEP UBA-Conicet.
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Another point that helps companies in the sector maintain their profit margins despite the low domestic price of a barrel is that oil companies operating in the country are very few and are vertically integrated. This means that the same company extracts, refines and sells the fuel.
Taxes: a frozen cost that is difficult to be honest
Another of the fundamental points in the price of gasoline are taxes. In addition to the 21% VAT, Apud mentioned two specific taxes that represent around 12% of the final price: the tax on liquid fuels and the carbon dioxide tax.
These taxes, along with the dominant position that YPF has in the domestic market, are the two tools that the Government has to cushion increases in the price of gasoline. For this reason, this Tuesday the postponement until February of the increases in taxes on liquid fuels was announced, the amount of which has been frozen since 2021. In this way, fiscal resources are resigned at the expense of containing the final sales price at the pump. .
The dominant position that YPF has in the domestic market is one of the tools that the Government has to keep increases in the price of gasoline limited. (Photo: YPF).
For Einstoss, the underlying problem “is that there is an enormous price distortion that implies the application of a carefully priced fuel and generates shortages.” Thus, according to his view, a “triple shock” challenge remains latent for the sector that the next government will probably have to resolve: “Adjusting local oil prices to international ones, modifying the exchange rate and updating taxes “, accurate. These three factors will impact the price chain and, therefore, the consumers’ pockets.
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