Raw orange | News from Mexico

“It’s like we sell orange and buy orange juice”,

Andrés Manuel López Obrador.

Cuernavaca, Morelos.-

That Pemex decides to stop exporting its most profitable product in order to increase the production of those that have losses shows the clumsiness with which the company is handling itself. That it does so by increasing its labor costs, already very high, while saying that it seeks to reduce consumer prices, falls into irrationality.

In this government, decisions are justified with metaphors, not with technical arguments. “We are not going to be selling crude oil and buying gasoline,” said President López Obrador in a video. “What was done for many years is like selling oranges and buying orange juice.” The figures of the oil business in the world, however, are very different from those of orange juice. The cartel of producing countries, OPEC, has for decades created a market that favors crude. In addition, there is enormous refining capacity in North America, which moderates the prices of the final products.

The President himself has affirmed that “it no longer costs us $ 14 per barrel to extract oil, we are extracting at the rate of up to $ 3 per barrel. That is why oil is always a good business.” These costs are bogus, of course. In reality, Pemex’s actual costs amount to $ 45.10 per barrel before taxes, when included, as in any accounting, capital expenditures, exploration, asset development, operating, sales, administrative, and interest (Lucas Aristizábal, Fitch Ratings, cited by Pablo Zárate in El Economista). Even so, there is a significant margin of profitability at a price of the Mexican export mix of $ 70.63 on December 28.

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While crude oil generates profits for Pemex, and taxes the government, Pemex Transformación Industrial, which refines and sells gasoline, diesel and jet fuel, loses more and more. In January-September 2018, Peña Nieto’s last year, he registered a net loss of 3,758 million pesos (almost enough to pay for AMLO’s revocation consultation). The figure increased to 61,205 million pesos in 2019, 152,968 in 2020 and 111,135 in 2021 (the first nine months of each year, Energía a Debate). Pemex TRI loses in three quarters more than what the Government says the closure of the New Mexico International Airport cost it.

If Pemex were willing to do an internal renovation to cut staff and costs, perhaps we could give it the benefit of the doubt, but it is going in the opposite direction. In 2019, the last year before the pandemic, the company had sales of one trillion 402 billion pesos, around 70 billion dollars. At the end of that year, it had 122,646 employees, of which 99,937 were unionized. In contrast, Exxon Mobil with total sales in 2019 of 264.938 million dollars, had a workforce of only 72 thousand workers. As if that were not enough, the government has announced that it is going to “basify” 17,000 temporary workers and lower the retirement age from 65 to 55, which will skyrocket labor costs.

Betting on an activity that loses money and inflates labor costs is not the way to lower consumer gasoline prices. Pemex is already the world’s most indebted oil company, with $ 105 billion. The government is having to inject huge resources into it to avoid its bankruptcy. No, the official strategy is not to sell orange juice instead of oranges, but to go bankrupt to charge the taxpayer with the costs.

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The price

What Defines the Price of Gasoline? In the United States in 2019, 52% was determined by the price of crude oil, 18% by transportation and retail costs, 17% by taxes, and 12% by refining (IEA). We will not lower prices for further refinement.

Sergio Sarmiento

Twitter: @SergioSarmiento



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