The first of the year the prices for gasoline and diesel jumped 14-23% across the nation, prompting demonstrations across the country and looting on the mainland of Mexico. This is one of the last stages of general opening markets under the ordinances of NAFTA that is designed to benefit American suppliers. But with the falling value of the peso against the dollar and the rising cost of a barrel of oil, Mexico has had to endure the hard truth of the free market price of petroleum products.
The second tier of what Mexicans call "Gasolineazo" was scheduled to be implemented on February 3, 2017, but following the public outcry and limited civil unrest the first big increase caused, the further changes were not implemented. This second phase was to set priced weekly, by the distribution zone for two weeks. By the third week of February prices would be allowed to float freely and by the third quarter of the year, free market pricing and competition from other brands would set the price. Delay of the second tier of pricing also delays the entry of foreign competition into the retail fuel market.
It seems the delay of the next price increase may not be that magnanimous, as the price of oil didn't rise since the last increase and the peso recovered some against the dollar. Perhaps the price increase was 'delayed' because it should have been a price decrease or posturing for future NAFTA negociations with the new American president.
Although some may wish it, it is very unlikely we will see anything but another increase in gasoline and diesel prices across the nation. Since all of the Baja peninsula is considered a premium market it is unlikely we will see anything but another increase in fuel prices.
Deregulation of the price of fuels in Mexico will be phased in over the several months. The price of fuels was set for long periods, for the past two years, the prices were only augmented annually. But by March the price of gasoline will change daily across the nation to follow the value of the pesos and costs of production.
January will see the price set by the month. The original pricing schedule had the price to be set the first of the week for the first two weeks of February and beginning February 18th, 2017 the prices of fuels was supposed to be set daily. With the February 3 change in policy, the schedule for liberalization of prices is now in question.
The new policy of unsupported fuel prices ends decades of government support and control of fuel prices in Mexico. The long-term impact will likely cause social changes as well, making remote small farms unprofitable and possibly driving more of the rural dwellers to populations centers and amalgamating small farms into larger more profitable corporate ventures.
Effective January 1, 2017, Pemex raised the nationwide average price of both grades of gasoline and diesel dramatically: Additionally, gasoline is priced by zone through February 2, 2017. Locations further from distribution points, like Central Baja, will begin to pay 2-3% more for fuel than La Paz.
A liter of Magna (regular) will rise 14.2% from the current $13.98 pesos ($2.55/gallon) to $15.99 pesos. ($2.92 per gallon)
A liter of Premium (Rojo) will jump 20.1% from $14.81 ($2.70 per gallon) to $17.79 pesos per liter. ($3.24 per gallon)
A liter of Diesel will rise 16.5% from $14.63 ($2.67 a gallon) to $17.05. ($3.11 per gallon)
For the various regions of the Baja peninsula see the price chart below.
The regions in Baja closest to the distribution points (Rosarito and La Paz) will see the smallest price increases, while remote regions of the central peninsula will see the largest price increases.
Two years ago we saw monthly augmentation in the price of fuels, then were promised a yearly price increase to compensate for inflation. In 2015 that was 3%. The unusual price increases left regular gasoline only pennies cheaper than premium. This pending price increase will increase the difference in price between the two grades as well.
Oil has become the true standard of currency and the current currency of choice is the US dollar. Every other economic element becomes relative to those two values.
With the dramatic fall of the peso against the US dollar over the last two and a half years, the price of Mexican gasoline is currently (20.7:1 exchange rate) $2.55 a gallon. (As of today regular gasoline prices in the continental US range from $2.05 in South Carolina to $2.71 in California.) Since Mexico is a player in the world oil production, the value of the peso fell against the country's own product and a price increase was inevitable.
This is bound to have an equally dramatic effect slowing the Mexican economy and increasing inflation. This will cause the peso to fall further against the dollar. But deregulation of the gasoline prices will phase in across the country this year, so brace yourself...