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Buenos Aires - Argentina will cut the price for crude oil produced and sold in the country to allow a 5% reduction in gasoline prices, the government said on Tuesday.
The federal government, which regulates domestic energy prices, announced a $7 per barrel cut in the fixed price of crude under a deal struck with private oil companies and oil-producing provinces in Latin America's Number 3 economy.
The measures will help ease price pressures on consumers facing one of the world's highest inflation rates. But it could disappoint producers, who have said a significant cut could jeopardise investment flows.
The gasoline price cut would take effect on January 1, Economy Minister Axel Kicillof told reporters.
Inflation is running at about 40%, according to economists, though the government clocks it at nearly half that.
The government has set the price of local crude below international market prices, but the slump in global prices has left Argentine consumers suffering while producers benefit.
The local price of oil was a major obstacle to cutting fuel costs. Tax breaks to cushion the impact of lower prices were part of the marathon talks, but Kicillof said details would be made public only at a later date.
"We still need to see how a few things will work out, including the cut in domestic taxes and those on exports," said a source at an international oil company with operations in Argentina who is familiar with the negotiations but not authorized to talk publicly.
The government in December 2013 fixed the price of local crude at $84 per barrel to keep prices low. But in the second half of 2014, international prices have swooned, with Brent trading at about $61 per barrel on Tuesday.
Argentina is counting on a vast, barely tapped shale formation covering an area the size of Belgium to reverse an energy deficit of about $7bn. It needs foreign firms to finance the cost of development, estimated at $200bn by state-controlled energy firm YPF.
Energy giants Chevron, Petronas and Royal Dutch Shell have made foot-hold investments, but heavy-handed state economic controls have kept them from fully committing.
