By Dimitra DeFotis
Argentina’s government has a grip on asset prices and the country’s currency, but has negotiated a 12% price reduction for local oil in dollars and a gasoline price increase of 6% in pesos.
Reuters
Argentina’s President Mauricio Macri.
While the international price of crude, Brent, has tumbled 17% so far in January to a recent $30.81, and the U.S. benchmark is trading at nearly the same level, Raymond James pegs Argentina’s Medanito oil price at $67.50 per barrel and Escalante oil at $55 per barrel. That’s one reason that Argentine energy producers have outperformed international oil prices of late: YPF (YPF) is down 11% this year and Petrobas Argentina (PZE) stock is flat. Over the past 12 months, Brent prices and YPF shares are eachs down about 40%, but Petrobras Argentina shares are up more than 18%.
The Global X MSCI Argentina exchange-traded fund (ARGT) was a relative winner over the past year, thanks in part to regime change: it fell 7% in that time span, while the iShares MSCI Emerging Markets ETF (EEM) fell 24% in the same time period.
Raymond James, which has market outperform ratings on YPF and Petrobras Argentina, says that with the Argentine peso depreciation of roughly 40% since mid-December after a new and more conservative Argentine government took office, prices in pesos should remain higher. Raymond James writes:
“Although still at a premium to international benchmarks, we expect oil prices to remain stable after this initial reduction. According to the press, prices at the pump will remain stable in February, but should regain momentum in March. In-line with this, we believe that prices at the pump will follow inflation this year, but should decrease in U.S. dollar terms, as devaluation exceeds the inflation rate. All in all, we expect to see margin pressure at the refining level …
The government has agreed with companies to increase pricing at the pump by 6% (in pesos) to partially offset the devaluation effect on refiners’ operating expenses (due to the higher price paid in pesos for oil purchases). In addition, and as mentioned previously, oil prices would fall in U.S. dollar terms, but this should be more than offset by the devaluation effect (12% oil price decline versus 40% devaluation).”
See our posts Argentina: Crop Quotas Quashed; Auto Tax Cuts; Macri Show Of Strength?, Argentina: Macri’s Move Ending Peso Black Market and Argentina’s Macri Makes $500B Shale Oil Investment, Among Other Changes.
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