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LatinNews Daily - 10 July 2018

López Obrador makes bold fuel promise in Mexico

Development: On 9 July, Mexico’s President-elect Andrés Manuel López Obrador promised that fuel and energy prices would not increase for the three years after he takes office on 1 December and would then start to fall. “That is my commitment,” he said.

Significance: López Obrador will need to deliver on his promise or face a loss of credibility and popularity. He intends to do so by expanding Mexico’s refining capacity and boosting crude oil production, which has systematically declined in recent years with a concomitant increase in foreign fuel imports.

  • “We will make sure petrol does not increase in price in real terms, that the same prices are maintained,” López Obrador said, adding that “any increase will be due to inflation alone”. He also promised that gas, diesel, and electricity prices would not rise above inflation either.
  • López Obrador said that Mexico’s six refineries would undergo improvements and that one new refinery would be built, most likely in his native state of Tabasco, “so we can stop buying fuel from abroad”. López Obrador said that, with domestic output expanded, fuel prices would come down “by the halfway point of [his] six-year term”.
  • Mexico’s dependence on imported fuel has grown in line with an increase in domestic demand and a decline in oil production, which currently stands at 1.9m barrels per day, its lowest level in more than 20 years. Mexico imports around 65% of its petrol and 60% of its diesel requirements.
  • López Obrador did not repeat his campaign promise to revise or even repeal the energy reform undertaken by the incumbent administration led by President Enrique Peña Nieto, ending the 75-year monopoly of the state-run oil company Pemex on crude production and opening the sector to foreign participation. During the campaign, López Obrador argued that the reform had failed to boost crude production or bring down prices as promised.

Looking ahead: With the current trend upwards in international oil prices, López Obrador’s promise to keep fuel prices down could lead to some costly subsidies in the three years he calculates it will take to reverse the decline in domestic oil production.

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