Argentine Oil Producers to Keep Domestic Prices to Mar. 31

Argentine oil producers will maintain a three-month agreement with the government to keep local crude at US$28.5/b until March 31, despite the West Texas Intermediate (WTI) price exceeding US$35/b, according to a spokesperson for Spanish oil company Repsol YPF. "It's not the best [situation for oil producers], but could be worse because the government could decide to tax export revenues at 100%," Repsol YPF's Lucas Mendez told BNamericas. The agreement was designed to keep local fuel prices at their current levels after most oil companies in Argentina - including US-based Esso, Anglo-Dutch Shell, and Repsol-YPF - raised downstream gasoline and diesel prices in 2002 to offset losses from the peso devaluation.

According to the terms, the agreement should have been renegotiated when the WTI crude price exceeded US$35/b for more than 10 consecutive days, which occurred in late February. But oil producers opted to maintain the agreement after finance minister Roberto Lavagna threatened to tax oil producers at a marginal rate of 100% on export revenues from crude sold above US$30/b if they increased local fuel prices. Another reason for oil producers to maintain the agreement is that further fuel price increases would be very unpopular in Argentina, and would negatively impact demand, Mendez said.

Oil producers will probably agree to maintain the US$28.5/b crude price after the expiry of the agreement in March, he said, adding it would depend on the international crude price at that time. "We don't know what will happen with the international oil price, we have to wait and see what Bush says [about war in Iraq]," Mendez said.

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