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Argentina oil price to converge with Brent, says driller

Bnamericas
Argentina oil price to converge with Brent, says driller

A majority of oil producers and refiners in Argentina have reached an agreement to allow the local Medanito crude benchmark to converge with Brent in 2017, according to independent driller Madalena Energy.

The agreement stipulates a Medanito price of US$59.40/b for January 2017, a figure that will drop incrementally each month until hitting US$55/b in July, Madalena said Tuesday in a statement.

The deal "outlines that should international Brent pricing be reached and remain higher than US$1.00 above the monthly Medanito floor price for 10 consecutive days, the agreement will be suspended and international Brent pricing adopted," Madalena said. "Should international Brent pricing fall below US$45 for 10 consecutive days, the agreement will be reviewed."

Medanito is a medium API density crude extracted from the Neuquén basin.

Brent has fluctuated in the US$54-US$57/b range so far in 2017. The World Bank in October 2016 raised its 2017 global oil price forecast to US$55/b from US$53/b.

BACKGROUND

In Argentina, where the government sets internal market crude oil prices, Madalena reported an average realized price of US$62.10/b in the first nine months of 2016, and expects an average of approximately US$54/b for the final three months.

Prominent figures including energy minister Juan José Aranguren and BP CEO Bob Dudley have advocated for a return to market-based pricing in the local oil sector, in order to provide better long-term visibility for operators.

The oil producing provinces, however, have said that authorities must maintain a floor price in order to protect jobs and maintain activity.

For natural gas, the government recently announced the extension until 2020 of a US$7.50/MMBtu incentivized wellhead price for new gas developments in an effort to stimulate investment in the Vaca Muerta shale formation.

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