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Shell’s Argentina Unit Lifts Fuel, Diesel Prices

The Wall Street Journal: Shell’s Argentina Unit Lifts Fuel, Diesel Prices

DOW JONES NEWSWIRES

July 27, 2004 6:42 p.m.

Posted 28 July 04

BUENOS AIRES — The Argentine unit of Shell (RD) announced Tuesday that it was lifting gasoline prices by 1.4% and diesel prices by 2.9% as of midnight Wednesday.

The measure was confirmed by a Shell spokesman, who said the company had acted because of the “sustained high international oil price.”

The move follows the decision by the local unit of Exxon Mobil (XOM) SA on the weekend to push through a similar price increase. The hikes in gasoline prices are the first such increases since refiners and producers signed a government brokered price-steadying accord in January 2003.

That accord expired in April and the following month, there was a plan by most companies to lift gasoline prices. However, the increases was shelved because of strong opposition from the President Nestor Kirchner’s government.

Shell and Exxon did lift diesel prices in May. Repsol YPF (REP) SA and Petrobras Energia Participaciones (PZE) followed suit last month.

Earlier, private sector officials were cited in local media saying there could be generalized gasoline increases from all the major companies.

However, an official at Repsol’s press office said late Tuesday that “as of today, we do not foresee any increases.” There was no one available for comment at Petrobras Energia.

So far, the government has made no comment on the decision of Exxon and Shell . Both companies have refineries in Argentina and depend in part on more expensive oil imports. Petrobras and Repsol have production and refining units, meaning their refinery sectors can purchase oil from the production side at lower local prices.

Under the fuel-price steadying accord, producers sold oil to refiners at $28.50 per barrel whatever the international price. Once prices dropped below that level, producers could continue selling oil at that price until they had recouped foregone earnings from refiners. The accord was seen lasting a few months, but since the international oil price remained above the $35 per barrel mark for much of the past 18 months, the agreement was repeatedly rolled over.

The government spoke out strongly against the price increases that were proposed in May. They said the hikes were unnecessary and reflected a “greedy” attitude in the private sector. As a response to the rise in diesel prices, the government hiked oil export duties and introduced a tax on natural gas exports.

In the end, the government convinced Repsol and Petrobras to keep gasoline prices put – a move that infuriated the rest of the sector.

One of the government’s central concerns is that oil price increases will give a fresh push to inflation. After a 3.7% increase in the consumer price index in 2003, the inflation rate is expected to reach between 7%-11% in 2004, according to the central bank. Authorities are keen to keep inflation nearer the bottom of that range, conscious that with every percentage point increase in CPI, tens of thousands more Argentines are forced below the poverty line.

By Laurence Norman, Dow Jones Newswires; 5411-4311-3127;

[email protected]

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