Producers to Maintain Crude at US$28.5/b to March 31

Argentina's oil producers and refiners signed Monday an agreement to extend until March 31 a deal that keeps the price of local crude at US$28.5 a barrel, a source at Spanish oil company Repsol YPF told BNamericas.

The previous agreement expired on December 31, but producers kept the price stable at US$28.5/b until the renewed agreement was signed "as a sign of good faith," the source said. This would be the fifth time oil companies have extended the deal, which was originally designed to keep domestic fuel prices stable as international prices rose to US$35/b in early 2003 amid concerns over the outcome of the Iraq war and Venezuela's oil strike.

The government's main concern is that, without such an agreement, domestic fuel prices could rise in line with higher international crude prices, which would increase inflation.

"The objective of this agreement is to guarantee stable fuel prices for Argentines," the source said. Argentina is fast becoming "like an island" as other countries in the region have recently increased fuel prices. "We have the cheapest fuel in Mercosur [trade bloc], thanks to producers and refiners that have decided to maintain the crude price lower than the international prices," the source said.

Under the agreement, refiners have agreed to keep fuel prices stable. Premium high-octane gasoline currently sells for about 1.9 pesos (US$0.65) a liter. Once the international price falls below US$28.5/b, oil companies will be allowed to maintain the price at that level until they can recover the estimated US$100mn they have lost since the agreement was first signed at the turn of the year.

Refiners will be able to buy cheaper crude and could even lower fuel prices in the future after oil producers have recovered their lost earnings.

The main refiners in the country that owe the oil producers are Spain's Repsol YPF, Brazil's Petrobras, the US company ExxonMobil and Anglo-Dutch Shell.

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