Argentina threatens to halt crude, refined products exports because of shortages

Argentina's economy minister Sergio Massa said Oct. 29 that exports of oil and refined products will be halted unless refiners normalize domestic diesel and gasoline supplies, after shortages led to long lines at service stations around the country over the past few days.

"I am going to defend the internal supply, I am going to defend the consumption of Argentines," Massa said in a televised speech. "If the supply situation is not resolved by Tuesday at midnight, from Wednesday they will not be able to take out any export ships."

Massa, who oversees energy affairs and is running for president in the Nov. 19 runoff election, blamed refiners for the shortages. He said that instead of distributing supplies, they sat on them on the bet that prices would increase after the first round of the presidential election on Oct. 22 or that there would be a currency devaluation.

Indeed, a government-refiner agreement to cap diesel and gasoline prices is due to expire Oct. 31. The agreement was reached Aug. 17 after pump prices were increased 12.5% in the wake of a 22.5% devaluation of the peso against the dollar on Aug. 14. The devaluation came in response to an unexpected poor performance by Massa's left-leaning party in the Aug. 13 all-party primary elections against far-right libertarian Javier Milei, who is competing against Massa in the runoff.

Massa said the shortages should not be happening given that Argentina's oil production is surging, led by the huge Vaca Muerta shale play. Argentina produced 645,500 b/d in September, the highest since November 2008 and well above average domestic demand of 525,000 b/d, according to data from the national energy secretariat.

"At some point some [refiners] speculated that, depending on the election result, there was going to be a devaluation," Massa said. "And then there were some others who speculated that the [price] freeze agreement would expire and there would be a new price, and there was talk of a 20% increase, a 40% increase."

Potential oil strike

Meanwhile, oil field workers in the Neuquen basin, home to Vaca Muerta and most of the country's oil production, said Oct. 29 they will go on strike Nov. 1 to support Massa's plea and put pressure on refiners to normalize the supply of fuel to the market.

"It is nonsense that there is all this talk of production records and at the same time there is no gasoline," the union for these 25,000 workers said in a statement.

Ahead of Massa's remarks, the country's four big refiners — BP-backed Axion Energy, Shell-backed Raízen, Singapore-based Trafigura and Argentina's state-run YPF — put out a joint statement blaming the shortages on what they suggested was an unexpected surge in consumption that pushed the downstream sector to "the limit of its capacity."

This stemmed from three factors, they said. The first was a rise in demand over the previous two weeks for travel during a four-day weekend, voting in the Oct. 22 election and the start of the corn planting season, one of the country's biggest crops. The second was that two refineries went down for scheduled repairs. The third factor was a run on service stations over the past few days on concerns of shortages, which aggravated the shortfall, the refiners said.

Without these factors, there would not have been shortages, the refiners added.

"Argentina's fuel production and supply infrastructure is robust. Argentina produces crude oil and biofuels in large quantities and has a refining system that is enough to produce more than 80% of the domestic demand for gasoline and diesel. The rest is imported, to a greater or lesser extent, at the pace of agricultural activity," the refiners said.

"Crude oil will continue flowing, refineries processing, imports entering the country and the logistics structure will normalize for supply, considering the great geographical dispersion of the country," the refiners added.

Lower use of refining capacity

Argentina's refinery utilization rate fell to 72.2% in August from 82.3% in July and 80.7% in the year-earlier month, as refiners ran less crude, according to the latest data from the state statistics department Indec. Refiners' diesel production was 11.2% lower year on year in August with gasoline output down by 4.4%, according to Indec.

There has been a decline in demand this year. A severe drought has reduced diesel purchases by the agriculture sector, while surging inflation — which touched 140% in September — and a contracting economy have hit pump sales. Diesel purchases fell 4.9% in the first seven months of this year from the year-earlier period, while those of gasoline tumbled 29%, according to energy secretariat data.

On Oct. 27, energy secretary Flavia Royon brokered a deal with the four big refiners to import 10 tankers of supplies and to end the scheduled refinery outages within 10 days.

The imports, however, are being bought at a loss because the cap on pump prices keeps the local price of crude at around $56/b, well the current prices of around $87/b for Brent, the international reference price followed in Argentina.

Election jitters

The concerns about future price hikes are expected to remain high ahead of the runoff between Massa and Milei.

Massa has vowed to keep pump prices at reasonable levels if he wins the election, saying that the opposite will happen if his adversary becomes president.

Milei responded to these comments on Oct. 29, saying that as president he would lift the exchange rate and price controls and return to a free market so that there is a sufficient supply of diesel and gasoline.

"The lack of gasoline is a postcard preview of the future that Massa will bring us if he is president," Milei said in an interview on LN+ television. "If you fix prices below the level of inflation, you create an excess of demand, and the consequence of this is that supplies vanish, and this leads to shortages."