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ECONOMY | 29-12-2023 21:23

Javier Milei seeks free oil markets by law in shale-rich Argentina

Milei wants to unshackle crude exports and leave local fuel prices at the whim of market forces.

President Javier Milei is seeking to extinguish decades of government intervention in the nation’s oil industry by unshackling crude exports and leaving local fuel prices at the whim of market forces.

Milei included such measures in sweeping legislation he sent to Congress on Wednesday, the latest move since the libertarian president took office on December 10 with a mission to deregulate Argentina’s tightly controlled economy. While his bill has far-reaching consequences for a slew of industries, it features a chapter specifically addressing oil.

The free-market provisions in his bill seek to replace rules from the 1960s that prioritise ensuring affordable fuel supplies at home. Those rules, which give refiners the right to first refusal on export cargoes and let the government meddle in crude and petrol pricing, have in recent years held back the vast shale patch known as Vaca Muerta — Spanish for "dead cow."

Under Milei’s proposal, sales abroad “will be free” and “the executive branch won’t be able to intervene in, or fix, prices in the domestic market.”

“Energy prices will couple with international values,” Juan José Carbajales, an energy consultant who once served as oil and gas undersecretary, wrote in a report. “The most radical change is eliminating the requirement to satisfy the needs of the local market — it’s an historic rupture with a century of Argentine tradition.”

It would also be a boon for drillers including YPF SA — the state-run oil company that Milei wants to privatise — whose shale investments have been curtailed by cheap prices at pump, as well as Vaca Muerta’s other major crude producers, Chevron Corp, Shell Plc and local outfit Vista Energy.

Milei’s bill will likely face stiff opposition in congress, where his party is a minority, since it rips at the fabric of status-quo Argentine policymaking.

While the legislation is being debated, Milei will move to liberalise oil markets on a more informal basis, according to two people familiar with the matter. The government will stop brokering talks between oil producers and refiners, allowing them to set crude and petrol prices as they wish, said the people, who weren’t authorized to publicly disclose private deliberations.

A Milei spokesman couldn’t be reached for comment.

Shale oil in Argentina traded at US$58 a barrel in the third quarter, when Brent traded at US$86, according to YPF.

Petrol prices have already skyrocketed since Milei won the election last month. But with gas stations selling a liter at less than 83 cents on the US dollar this week, they remain among the cheapest in the world, according to GlobalPetrolPrices.com.

by Jonathan Gilbert, Bloomberg

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