Key facts
- Global crude and refined product benchmarks have declined sharply in recent weeks.
- US benchmark WTI crude futures are down 17% since June 1.
- Petropar secured significant diesel volumes at elevated premiums in April-May.
- Current diesel premiums are about 33% lower than Petropar's recent purchase premiums.
- Petropar's high-cost inventory limits its ability to pass through lower import parity without eroding margins.
Paraguay's fuel market is experiencing a divergence between falling international prices and a slower adjustment of domestic retail prices. This lag is primarily attributed to state-owned Petropar's inventory of high-cost fuel acquired during a recent price surge.
Global benchmarks for crude oil and refined products, such as WTI and ULSD, have seen significant declines in recent weeks. This decrease is driven by a reduction in geopolitical tensions and ongoing negotiations between the US and Iran. Consequently, the cost of importing diesel and gasoline into Paraguay has theoretically decreased, creating an opportunity for lower pump prices.
However, pump prices have not yet reflected these lower import costs. This delay is due to varying procurement cycles and stock positions among market participants. During the previous price rally, private distributors rapidly increased their prices in line with higher import costs. Petropar, in contrast, absorbed some of the increase by utilizing its substantial storage capacity of 320,000m³, smoothing domestic price adjustments and gaining market share.
Petropar's strategy of holding larger inventories has now become a constraint. The company purchased significant volumes of diesel at premium prices in April and May. For instance, a 50,000m³ diesel tender was awarded to Vitol at a 53.3¢/USG premium, and further purchases from Trafigura and Glencore were made at premiums of 37.11¢/USG and 32¢/USG, respectively.
Currently, diesel premiums for prompt delivery are assessed at much lower rates, around 14.50¢/USG and 11.50¢/USG over Nymex ULSD benchmarks. These figures represent premiums approximately 33% lower than those Petropar secured in its recent purchases. These higher-cost barrels continue to impact Petropar's average supply cost, limiting its ability to lower retail prices without sacrificing margins.
Private importers, possessing smaller inventories and faster stock turnover, are in a better position to benefit from the current downward trend in prices. Their ability to source cheaper cargoes more quickly allows for greater flexibility in adjusting pump prices. However, competitive dynamics and Petropar's significant market role are expected to prevent aggressive price undercutting.
While international benchmarks suggest potential for fuel price reductions, the pass-through to consumers in Paraguay is anticipated to be gradual in the immediate future.