- Government-set price for crude prompts decision to import
- Energy minister asked refiners to buy domestic in May
Argentina is importing crude for the third time this year, putting pressure on the government to ease its fixed price for domestic oil.
Axion Energy along with Shell, Petrobras and Oil Combustibles bought 1 million barrels of oil from West Africa for their refineries in Argentina. The same companies bought a cargo of Nigerian Bonga crude in May, a decision that prompted Energy Minister Juan Jose Aranguren to summon refiners and say it “doesn’t make sense” for Argentina to export light oil and import from West Africa.
Argentina is home to the Vaca Muerta formation, the world’s second-largest reserve of shale oil. The government sets the price for domestically produced light crude at $67.50 a barrel to maintain output amid declining global prices. By doing so, it has also created an incentive for refiners to import cheaper oil. The latest imports may prompt changes by Argentina’s government, Oslo-based Rystad Energy analyst Bielenis Villanueva Triana said in an e-mail.
“The fixed oil price in Argentina is likely to be removed once Brent prices continue to increase,” she said. “Not necessarily to disincentivize light oil imports, but also to incentivize the international oil companies to develop Argentina resources.” Brent crude settled at $46.40 a barrel today in London.
Argentina’s production of light oil has been increasing. Output at the Loma Campana oilfield in Vaca Muerta increased 15 percent year over year in May to 25,415 barrels a day, according to data from the country’s energy secretariat compiled by Bloomberg.
“The government is certainly under pressure to change its policy,” Marcela Segade, a director of downstream for Latin America at IHS Energy, said in a phone interview from Houston. The government is unlikely to align the reference price with international markets in the short term because the economy is doing poorly, she said. A cut in the price now could prompt producers to cut drilling and jobs, triggering protests from the strong oil workers’ union.
Light crude imports aren’t driven by demand as crude consumption in the first quarter dropped compared with the previous quarter, Triana said. Year to date, Argentina light crude exports include cargoes of Cruz del Sur, Hidra and Maria Ines.
“The imports are more a matter of profitability,” she said.