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Mexico Maximum Prices For Gasoline & Diesel in January 2017

Source: 12/27/2016, Location: South America

There will be 83 regions in the interior of the country and seven in the northern border. The differences between regions correspond to different transport and logistics costs. The maximum prices will not have additional adjustments in January. In February they will have two weekly updates and then will be daily updates.

Starting in 2015, with the objective of updating our gasoline market, Mexico moved from a single price model to a maximum price scheme. In 2016, in order for this market to reflect international conditions, a tax per liter, known as fixed IEPS, was adopted.

During 2017, to continue with this process, the maximum prices will be determined by region and will reflect Pemex's logistical costs, in the terms approved by the Energy Regulatory Commission (CRE). Also, during the year the period between adjustments will be reduced so that, from the third week of February, these are carried out on a daily basis.

The maximum prices will differ between the different regions of the country, reflecting the costs of bringing the fuels to each one of them. The difference in costs is due to the distance from each location to the Pemex refineries or the points of importation, as well as to the different types of infrastructure for transportation and fuel distribution. When in some locality the environmental norms demand the use of fuels of greater quality, this will be reflected also in the maximum price.

The country will be divided into a total of 90 regions (7 at the border and 83 inland), which correspond to the areas that supply PEMEX's existing storage and distribution infrastructure. The list of municipalities that belong to each of the regions can be consulted on the page of the Energy Regulatory Commission.

The regional maximum prices shall be determined by a transparent and objective formula where the following three components are added:
- The international reference prices of each fuel. This represents the cost of acquiring the fuels in the international market. The reference price used will be that of the Gulf Coast markets of the United States. This cost is common to all regions of the country, except for the quality adjustment applied for each specific area, according to applicable environmental standards.
- The costs of transportation, internment, freight and distribution of Pemex. These costs, approved by the Energy Regulatory Commission, vary for each region.
- Other concepts, including applicable taxes and the commercial margin for service stations. It should be noted that there is no increase in taxes applicable to fuels. These concepts are also common across regions.

In the seven zones located on the border with the United States, the maximum price will be established to limit the difference in prices between the Mexican city and the US city located on the other side of the border. This will be done through adjustments in the corresponding taxes. Previously, the scheme in border areas was handled through differentiated prices of Pemex in its sales to the service stations in the area. In an environment of free imports and market opening where there will be gasolines other than those of Pemex, adjustments will be made directly through the service stations in their sales to consumers.

The maximum prices will now be adjusted more frequently compared to what was done in 2016. It will start with a single maximum price during January and until February 3, 2017, and then in February make two weekly updates in the first two weeks of the month. From Saturday February 18 will be determined on a daily basis.

It is also reported that the average prices nationwide from January 1 to February 3, 2017 will be $ 15.99 for Magna gasoline, $ 17.79 for Premium gasoline and $ 17.05 for diesel, although it is important to remember that each of the 90 regions will have Their own levels. The maximum prices for each region are available on the website of the Energy Regulatory Commission.

These represent increases maximum prices for Magna, Premium and diesel 14.2%, 20.1% and 16.5% respectively from the peak observed price gasoline in December 2016.

The increase is due to rising international fuel prices and no Involves any modification or creation of taxes. The international reference prices for Magna and Premium gasoline, and diesel, rose significantly in the last quarter of 2016.

The maximum prices are valid as has not eased the fuel market in a region.

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