Oil Producers To Extend Price-fixing Agreement
Argentine oil producers will sign an agreement by Thursday to extend a three-month agreement with the government to keep the local crude price at US$28.5/b, a spokesperson for Spanish oil company Repsol YPF told BNamericas. "There is nothing definite yet. They were supposed to sign [the agreement] Tuesday but there are still some issues to be worked out and some minor adjustments," the spokesperson said.
The main issue is that oil producers are demanding compensation for the January-March period during which they were selling crude to refiners at US$28.5/b, instead of exporting the crude at international prices, which reached US$35/b. The West-Texas Intermediate (WTI) benchmark price is currently around US$28/b, roughly the same as the local price in Argentina, but the WTI is likely to drop even further if the war in Iraq is concluded quickly, the spokesperson said. If, for example, the WTI price drops to US$24/b, it would take about six months for refiners to compensate oil producers by continuing to pay US$28.5/b, the spokesperson said. But no one can predict how much the WTI price will drop, and so the expiry date of the extended agreement will depend on the WTI price and how long it takes producers to balance their books.
"Once producers receive compensation, the local price will be reset according to the international situation at that moment," the spokesperson said. The original 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.
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