EconomyFinancialThe recovery after the pandemic triggers the price of...

The recovery after the pandemic triggers the price of fuels

The price of gasoline and other energy sources already exceeds pre-pandemic levels. The increase in mobility and a significant cut in supply have combined and led energy companies to register prices well above those seen before the health contingency.

In the country, during the first half of June, gasoline was sold on average at 20.27 pesos per liter, according to data compiled by the consulting firm PetroIntellgence. The price implies a 17% increase compared to the same period last year, when the average price was 17.24 pesos per liter and the collapse of international oil prices affected a global drop in the price of gasoline.

Compared to the same period in 2019, when conditions were stable, the increase in the average price at which gasoline is sold to the public is 5%.

The pandemic, and the limitation in mobility derived from it, resulted in a slowdown in the production of crude oil and fuels. The Organization of Petroleum Exporting Producers (OPEC) significantly reduced its crude production and large international refiners decided to lower the capacity of their complexes, due to excess inventories and a fall in their profit margins that made the operation unprofitable. activity.

“Everything has been from the pandemic. The lowest price benchmark was a year ago, when the economy was practically completely closed and that affected the international price. And then, little by little, when the partial openings began, the price began to rise ”, says Alejandro Montufar, general director of the PetroIntelligence consultancy.

The excess inventory of large producers and a demand that registered historically low also led to a drop in international gasoline prices between March and May of last year. In May, the country registered prices of up to 7 pesos per liter at public service stations in some municipalities on the border with the United States.

Why are fuel prices rising?

But now, a rebound effect has begun, analysts say. With an accelerated vaccination campaign in most of the major economies and a still limited supply from large producers – as part of a strategy to recoup their losses – energy prices have begun a rapid escalation, the trend of which has been projects to continue.

The winter storms in the southern United States, during February and March, which caused the cease of operations of some refineries and the reduction of excess inventory that some had, have also influenced the rise that has been maintained in the last three months .

On Monday, imported gasoline delivered to the east coast of Mexico – where the main traders are supplied – was sold at 10.5 pesos per liter, the highest price since the summer of 2018, according to data from OPIS, an agency of reference prices for fuels.

In March of last year, when the health emergency began in the country, the price of this gasoline touched much lower levels, of 2.43 pesos per liter.

The exchange rate and a significant increase in the international price of oil have also been an important factor, the sources agree. During the year, the peso accumulates a loss of 3%, according to data from the Bank of Mexico, with a maximum price of 20.93 pesos per dollar last March. The country imports the majority of fuels from the United States and the reference price is calculated in dollars, hence the impact on the price of the currency.

The recovery of oil – which hit negative prices in April 2020 – has also affected the costs of refineries, which increase spending on their inputs. And the volatile conditions, derived from the pandemic and the use of new technologies, could lead to the reference mixes, WTI and Brent, to be above $ 100, and with that, the price of fuels will also see a trend. upward.

“Several factors have supported the recovery in prices. On the one hand, fuel inventories in the United States decreased due to the winter storm (in Texas) and then the cyberattack on the Colonial pipeline (in May) ”, explains Daniel Rodríguez, associate director of OPIS. “OPEC’s efforts to reduce oil production have also helped to increase fuel prices and, on the other hand, the vaccination campaign in developed countries and Asian economies that have increased global demand for fuels.”

In Mexico, the demand for gasoline has already exceeded the levels recorded during the peak months of last year, according to the latest data published by the Ministry of Energy. But these still do not equal the ordinary sales recorded in years past.

In the week of June 7 to 13, the most recent data published by the agency, gasoline sales in the country stood at 707,000 barrels per day, an increase of 15% compared to the same period last year – when economic activities they were practically paralyzed – but still 11% below the sales registered in the same week of 2019.

But other large economies have already begun to see significant recoveries in their consumption levels. The demand for refined products in China has already exceeded the levels seen in 2019, India is a few percentage points of the sales seen before the pandemic and the United States and Europe are 10% below the levels registered before the health emergency.

“It is important to see that in January, for example, the demand for fuels in China plummeted 60% compared to pre-Covid levels, in India in May the demand plummeted 80%, while in the United States and Europe the demand fell 35% in May compared to the levels seen in 2019, ”says the associate director of OPIS.

And the recovery in international demand has also generated an increase in the price of other fuels, such as liquefied petroleum gas (LP), which is consumed in 70% of Mexican homes.

The price of fuel accumulates an interannual increase of 33%, equivalent to 3.16 pesos per liter, according to information published by the Energy Regulatory Commission (CRE). In the first half of May this year – the latest data published by the regulator – LP gas was sold in the country at an average price of 12.7 pesos per liter, in the same period last year it was marketed at 9.54 pesos.

So far this year, gas has also accumulated a significant rise, of 9%. In January of this year, it was sold on average at 11.69 pesos per liter.

The rise in the cost of fuel, analysts explain, has a similar origin to the rise in gasoline. The restriction of the supply of hydrocarbons and a higher industrial demand for the fuel, mainly from Asia, which are used in the petrochemical and plastics industry.

“As a consequence of the pandemic there was a slowdown in production, so you are joining a situation where demand recovers to normal levels, but supply has not yet, so this creates upward pressure on prices,” says an analyst at the sector.

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