Crazy dream of $45 oil may become reality in Argentina

Bloomberg

West Texas Intermediate has been gaining since its history-making crash in the US last month, trading at around $25. Brent crude has been practically soaring, touching $30 in London. They can’t match the criollo barrel in Argentina, though — $45 guaranteed, no matter what.
That dream price doesn’t actually exist, but it could soon. The administration of President Alberto Fernandez has circulated a proposal to set $45 as the per-barrel mandate in a bid to keep the domestic drilling business alive and sustain development of the vast Vaca Muerta shale formation during the demand-killing coronavirus pandemic.
Energy markets are rarely left to their own devices in Argentina, to the frustration of many in the industry, and past governments have used controls to shield the local energy business from global price swings. It’s happened so often that there’s a name for it, the criollo barrel, or creole in English. In Argentina, creole means home-grown.
It’s always controversial, pitting producers against refiners and criticisd by economists as the kind
of protectionism that’s counter-productive in the long term and creates chaos in the supply chain. But the government and drillers see it as vital in an unprecedented crisis. “This is an opportunity moment,” said David Tawil, interim CEO of Centaurus Energy, an independent producer with shale assets. “Argentina shouldn’t squander the progress made in Vaca Muerta — this is a time when the government can make strides.”
Right now, oil in Argentina is commanding about $20 a barrel. The calculation is that $45 would be close to break-even for fields across the country.
“If we don’t do it, the big danger is that when things get back to normal, perhaps in a year, and prices rebound we don’t have production going and we have to import crude,” Matias Kulfas, the country’s production minister, said. “That’s why we’re looking to provide certainty going forward.” Of course, $45 oil would only be a boon for producers if there were buyers. There aren’t. Argentina’s strict lockdown to tackle Covid-19 has crushed fuel consumption, as it has around the world.
With at least three of the country’s major refineries all but closed and storage facilities filled to the brim, drillers are tightening output, exporting at a loss and paying small fortunes to stockpile aboard tankers.
The criollo barrel’s return would give producers comfort. If they knew now that they would be reaping $45 a barrel later, when demand rebounds, they would be less aggressive in pulling back operations. For long-term planning, global drillers typically prefer market prices low to the vagaries of government intervention.
The burgeoning shale fields in Vaca Muerta — a trove beneath a desert in Patagonia that may hold more hydrocarbons than the Permian Basin in the US — could provide a huge revenue stream for a nation in the throes of financial chaos.