Wednesday, January 21, 2015

Gov’t agrees to analyze subsidies for oil sector

Signs deal to discuss potential measures as crude continues plunging to US$46.39

The seemingly never-ending plunge in oil prices led the federal government to agree yesterday with governors, union leaders and oil companies heads on a series of measures to keep the current production levels steady and prevent any job losses in the sector, which could lead to “conflicts” that may alter the “social peace.”

The agreement, signed at a meeting led by Economy Minister Axel Kicillof, came on the same day as US crude settled down 4.7 percent to US$46.39 per barrel, after hitting an intraday low of US$45.89, keeping the commodity near its lowest level since 2009 after a fall of more than 55 percent since June. Meanwhile, Brent crude went down 1.8 percent to US$47.99.

“We agreed to work on an stimulus plan to compensate the lower profits obtained by companies after the plunge in oil prices,” Mendoza Governor Francisco Pérez told reporters as he left the meeting. “The barrel of oil is now being sold worldwide at US$40 but in Argentina it costs US$63. Such price difference is paid by the federal government and the provinces, which are carrying out a big sacrifice considering the fewer oil royalties.”

A schedule of meetings was established with all the oil producing companies in order to negotiate new possible benefits to maintain and even increase crude production. The first round will include governors of La Pampa, Neuquén, Río Negro, Chubut, Santa Cruz and Tierra del Fuego. Jujuy, Mendoza and Formosa will all make up the second group of provinces.

Governors and government officials also ratified the details of the stimulus plan announced last month, through which each company receives US$3 per barrel for maintaining or increasing production at an oil field. Output will be reviewed every three months by the government, with the last quarter of 2014 as the baseline. The plan was announced alongside a five percent decrease in fuel prices that came into effect at the beginning of the year.

“We held a meeting in December due to the drop in oil prices and we analyzed how it affected the provinces and the federal government. Now we organized a similar meeting to work on the stimulus plan,” Pérez said. “A round of negotiations will be held with the provinces, in which governors, federal government officials, union leaders and companies’ heads will participate.”

The governors of Tierra del Fuego (Fabiana Ríos), Chubut (Martín Buzzi), Río Negro (Alberto Weretilneck), Formosa (Gildo Insfrán), La Pampa (Oscar Jorge) and Jujuy (Eduardo Fellner) also took part in the meeting. At the same time, YPF CEO Miguel Galuccio, Shell boss Juan José Aranguren and PAE chief Carlos Bulgheroni also participated.

In a press conference before the meeting, Buzzi highlighted the need to prevent job losses in the sector and said the federal government and the provincial governments will work towards that objective.

“We cannot have any job losses. Our objective has to be maintaining the employment level,” Buzzi said. “The international context is complex but we need to face the scenario with a positive outlook and not allow the production to decrease. Chubut has an active role and we are working together with the federal government and the companies in order to solve this crisis.”

The drop continues

Oil fell as much as five percent yesterday after the International Monetary Fund cut its 2015/2016 global economic forecast 0.3 percent, estimating a 3.5 percent economic growth (see page 8). The lower forecasts implied less demand for fuel through 2016, contributing to another fall in crude oil.

Benchmark Brent crude closed down 85 cents, or 1.8 percent, at US$47.99 a barrel. It earlier touched a session low of US$47.78. US crude settled down US$2.30, or 4.7 percent, at US$46.39 a barrel, after tumbling to an intraday bottom of US$45.89.

US oil services firm Baker Hughes said in a conference call yesterday that the US average rig count was expected to decline 15 percent in the first quarter from the previous quarter, and it expected to lay off some 7,000 staff. Meanwhile, data from Baker Hughes showed the number of rigs drilling for oil in the United States fell by 55 last week, the second-sharpest weekly drop in 24 years.

Trade group American Petroleum Institute will issue its data on US crude inventories for last week today while the government’s Energy Information Administration will release its stockpile tally tomorrow, both delayed a day by a holiday on Monday.

Herald with Reuters, Télam