Tuesday, June 25, 2024

Gas prices creep up as fuel subsidies reduced for second consecutive week

The Mexican Finance Ministry (SHCP) has announced a further reduction in fuel subsidies, leading to continuing high prices for gasoline and diesel in Mexico.

For a second consecutive week, the SHCP has reduced a federal fuel subsidy used to offset the IEPS excise tax, , the SHCP said, resulting in an increase in gas prices.

Mexico’s largest carrier, Fuel costs represent about 35% of operating costs at Volaris, Mexico’s largest air carrier. The company has seen shares fall 25% this year. (CC BY-SA 4.0)

Subsidies on “Magna” — premium fuel — have reduced from 53.3% to 47.2%, while regular gasoline has gone from 31.9% to 26.1%. Diesel saw the smallest drop in support, down 0.9% to 57.15%.

As a result, the average price of regular gasoline will reach 22.36 per liter, down slightly from the all-time high of 22.41 between Sept. 15 to 18. Premium gasoline — greater than 91 octane — will cost 24.65 per liter, according to industry consultants PETROIntelligence.

Higher fuel prices have presented challenges to Mexican businesses. Low-cost airline Volaris, Mexico’s largest carrier, has seen shares fall 25% this year. Fuel costs represent around 35% of all operating costs at the airline according to company reports.

Transportation firms Grupo México Transportes and Traxión have also seen costs rise in line with fuel prices, although unlike Volaris, this has not had a negative impact on share price.

A red train painted with the word "Ferromex" on a track.
Higher fuel prices have impacted transportation businesses like Ferromex, owned by Grupo México Transportes. (Wikipedia CC BY-SA 3.0)

IEPS is paid on every liter purchased by consumers, and to avoid volatile prices, the SHCP establishes a fixed price every week, based on the international oil market and logistical costs. Current prices will remain in effect until Oct. 6, when the SHCP will review the subsidies once again.

The rise in gasoline prices comes as a result of global supply issues after major producers Saudi Arabia and Russia reduced their output.

With reports by Milenio and El Economista

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