Gasoline and diesel prices are no longer subject to government control anywhere in Mexico following the conclusion of a process to liberalize the domestic fuel market.
The Finance Secretariat (SHCP) announced Wednesday that fuel prices would be fully deregulated effective November 30 and it would cease publishing daily maximum prices.
Government-set prices came to an end in a staged process that was rolled out across the country over the last several months.
However, it added that it would continue to soften sudden price variations through a stimulus scheme to alleviate the burden of the IEPS excise tax.
In other words, it will continue to intervene albeit in a limited way in the market when prices rise abruptly due to fluctuations in international fuel prices and the exchange rate.
Intervention in the fuel market via the economic stimulus will cost the government around 70 billion pesos (US $3.75 billion) in 2017. A reduction in the stimulus next year is expected to lessen the impact on public coffers.
In the northern border region, the measure has gone some way towards making up the price gap with cities in the southern United States, where fuel is cheaper.
Still, large oil companies and other players in the fuel market have welcomed the news to further ease government control and United States based suppliers are eager to take advantage of the relaxed trading conditions.
Foreign companies have been allowed to transport fuel in the country since April last year and new retail gas stations have proliferated in a market previously only open to state-oil company Pemex. BP, Shell and Gulf are among the companies to take advantage of the relaxation.
Now that fuel prices will be further exposed to market forces, companies are expected to ramp up supply. Trucks and trains are already transporting fuel at frequent intervals from Texas refineries to the United States-Mexico border and onward to distribution terminals in Mexico.
Coupled with an energy reform that allows private companies to participate at every stage of the supply chain, the end of state controls means that more and more foreign companies are planning to invest in port terminals, storage facilities and other infrastructure that will allow them to better compete with Pemex.
Chevron, Exxon, Shell and BP are among the companies that are now seeking to import their own fuel rather than accessing Pemex supplies.
Nevertheless, Pemex will maintain an advantage over new competitors in terms of infrastructure at least for the time being although it faces significant problems of its own such as the loss of billions of pesos in revenue due to pipeline theft that continues to rise despite efforts to combat it.
Source: Mexico News Daily