Low Cost Oil and Expensive Gas

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The price of a barrel of oil, today, is US$49.22; but in the income budget was priced at US$79.00 per barrel. Oil prices are dropping rapidly. On June 2014 it was at US$ 102.00 a barrel. It does not look as if prices are going to stabilize soon.

A very simple question: Why is it that gas prices do not go down, if the Oil is cheaper now? The same thing happened not too long ago when corn prices went up and therefore, the tortillas went also up. Then, corn prices came down but tortillas continue at high prices. Another is instance is when, a few years ago, the agave was scarce and the price of the Tequila went up; but then, the agave went from 15 pesos to 50 cent a kilogram, and Tequila price did not go down, it remained at the same high prices. Since my knowledge on economy is limited, I ask: who came out the winner?

Going back to oil, international analysts say that oil is cheap now because of the demand. However, the supply is not real, this is consciously orchestrated, with the purpose of putting pressure on some countries and in a way, punish the countries that are vulnerable to this pressure. That’s the case of Russia, Venezuela, Iran and, unintentionally, Mexico. The over production seemingly started June, 2014, Went US and countries of the European Union decided to sanction Russia for the Ukrainian issue. These affected countries depend on the oil proceeds. In Venezuela case, it has been said that 90% of its income comes from Oil.

Russia not as much; but both countries are losing thousands of millions dollars for each dollar the barrel of oil goes down. And we have not seen the end of this tendency yet. It is the same in the case of Iran: Saudi Arabia, United States and Canada have increased the offer and there won’t’ be a cut in the production in a short term, and perhaps not until the Oil Producers Export Countries (OPEC) meet this year, 2015.

As for Mexico, it produces 2.2 million oil barrels a day, but this ooil is not exported. Specialists say the drop of oil prices does not affect Mexico that much, given the fact that Mexico bought a price (insurance) cover of 700 million dollars. So, no matter; whether prices go up or down, Mexico will pay the same (seven hundred million dollars). Another reason is that now days, we depend less on oil, Exportations have diversified. Prices in gas in USA have gone down, and a big portion of their gas is imported to Mexico.

In spite of all the publicity of law reforms, we don’t see the changes we have been promised. The fact is that if prices go down, the income is lower; if this is so, how is the government going to fund the projects for the year 2015? Where is the government going to get the funds that is not collecting because of less earnings, and to make matters worse, this it is an electoral year? …

One question to think about: Who is the one that can order to lower the prices of gas in Mexico? Is it the legislative power, members of Parliament or member of Congress? Or is it the Executive, the President? Or, who will dare to propose it with a good dose of illusion or a letter to the Wisemen, knowing full well the consequences surrounding this decision?

 

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