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Mexico at odds to quell fuel protests

10 Jan 2017, 10.09 pm GMT

Mexico at odds to quell fuel protests

Mexico City, 10 January (Argus) — Mexico's energy ministry and Onexpo, the country's largest fuel retailers association, have committed to ensure fuel supply, as protests against recent fuel price hikes persist across the country.

The supply pledge looks to be challenging to fulfill as protests, at times violent, grip major distribution hubs and arteries, as well as service stations.

The unrest erupted in various states on 1 January, when pump prices increased by 14.2-20.1pc as part of a transition to full liberalization of the fuel market by 2018.

Mexico's state-run Pemex acknowledges "critically low" fuel stocks in states such as Baja California, Chihuahua, Morelos and Durango. Local Onexpo executives told Argus that supply problems have also cropped up in other states such as Oaxaca and Chiapas in southern Mexico. The shortages are largely attributed to hoarding, theft and blockades.

Protesters have been blocking Pemex's fuel storage and supply terminals in key hubs such as Mexicali and Rosarito, and clogging roads used by trucks to supply more remote areas and regions not connected to the country's oil pipeline system. Pemex said today that a Mexicali blockade has sapped fuel supplies and called on protesters to pull back to allow distribution.

The opening of the fuel market is one of the most sensitive and complex aspects of the 2014 energy reform that dismantled Pemex's monopoly. The government has chosen to slowly deregulate prices region by region over a two-year period that will end by 31 December 2018, rather than impose an abrupt across-the-board opening. But if the gradual approach was meant to soften the blow ahead of 2018 general elections, the ongoing reaction on the streets suggests that it has backfired.

Formerly set by the finance ministry, maximum fuel prices are now slowly being released to reflect logistical costs in different regions throughout the country, international reference prices and commercial margins for fuel retail stations.

In January, new maximum prices average 15.99 pesos ($0.77) per liter for 87-octane gasoline, 17.79 pesos/l for 93-octane gasoline and $17.05/l for diesel.

This pricing formula will be updated on 4 February and 11 February. Starting on 18 February, maximum prices will be updated every day in the 90 different regions set by the Energy Regulatory Commission (CRE), until market-driven prices are implemented nationwide.

The price adjustments have sparked opposition from Mexicans fearing a broader inflationary effect.

"In the past eight years, six times we have seen gasoline prices going up about 10c, between 9.7pc and 12.7pc," Mexico's finance secretary Jose Antonio Meade Kuribrena said yesterday. "And during all these years, inflation remained moderate and within what was expected."

Mexico's beleaguered president Enrique Peña Nieto (PRI) yesterday presented measures meant to "strengthen the economy and protect Mexican families" by discouraging price increases on staple goods and cutting the salaries of senior government officials by 10pc.

Peña Nieto has said pump prices had to rise in order to sustain social programs.

Mexico's fuel consumption has increased in recent years, while crude production has fallen for over a decade, from a peak at 3.4mn b/d in 2014 to 2.1mn b/d last year.

Output from Pemex's six domestic refineries hit record lows in November, with 254,000 b/d of gasoline and 160,000 b/d of diesel reported.

The downstream system's utilization rate fell to 44.9pc in November, down slightly from 46.2pc in October and off significantly from November 2015, when it was 60.9pc. It bottomed out at 44.1pc in September, according to the energy ministry.

Pemex's refineries processed about 780,000 b/d of crude in November. The system has a combined capacity of 1.74mn b/d.

Crude throughput dipped to about 766,000 b/d in September, its lowest level since December 1990.

Availability of competitively priced fuel imports from the US Gulf coast and elsewhere, combined with budget tightness from lower oil prices that caused Pemex to delay maintenance and upgrades, has eroded the company's fuel production.

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