(S&P Global Platts, 26.Jun.2020) — Argentina has extended a 99-day-old economic lockdown for three more weeks to try to contain a surge in coronavirus cases, including by tightening restrictions on people’s movements in densely populated parts of the country, a decision seen as cutting oil demand and production that had been recovering from a low in April.
“We are going to take a more severe step: we are going to ask everyone to isolate themselves at home and only go out to look for provisions that are necessary for everyday life,” President Alberto Fernandez said June 26 in a pre-recorded address. “The coronavirus is that invisible enemy that you never know when you will finish defeating him.”
The tighter restrictions will affect mostly Greater Buenos Aires, known in Spanish as the AMBA, and a few other parts of the country from July 1 to July 17, he said.
“We are going to close the AMBA to reduce circulation and thus reduce the contagion,” he said. “We have to isolate the metropolitan area from the rest of the country because the rest of the country is not having the same problems.”
AMBA is home to 14.8 million people, or a third of the 45 million national population, and much of its business and industry. It has been the hotspot in Argentina for coronavirus cases — at 97% of the most recent cases, according to Fernandez — since the first was reported in March. The number of cases has since surpassed 52,000, leaving more than 1,100 people dead, according to data compiled by Johns Hopkins University’s Coronavirus Resource Center.
As part of the more rigid restrictions, public transport can be used only by essential workers, while people will only be able to drive if they have the proper authorization, the president said.
The stricter lockdown likely will dampen a recovery in oil demand that came with a loosening of restrictions that began in May, boosting sales of diesel and gasoline.
State-backed YPF, the country’s largest oil producer and refiner, said in May the partial reopening of the economy had allowed it to boost utilization rates at its three refineries to between 55% and 60% from a low of 47% in mid-April.
That came alongside a recovery in nationwide oil demand from as low as 200,000 b/d in mid-April. Before the pandemic, demand averaged 450,000-500,000 b/d, according to most estimates. The decline led refiners to scale back crude runs, including the closure of two refineries in April, forcing producers to shut wells, including in Vaca Muerta, a huge shale play that has attracted majors such as Chevron, ExxonMobil and Shell.
As a result, oil production fell 9.2% year on year to 460,900 b/d in April and was down 11.2% from a most recent high of 519,255 b/d in August 2019, according to the latest data from the Energy Secretariat.
Jose Luis Sureda, an oil industry veteran and former national secretary of hydrocarbon resources, said he does not expect production to recover to pre-pandemic levels this year.
“Argentina is going to end up having a bad year,” he said.
Shale oil wells on the back burner
Looking forward, however, Sureda said oil production can recover relatively quickly because a number of producers have what he estimates to be 50 wells in Vaca Muerta that have been drilled and just need to be fracked and completed.
“Those wells are going to start up and with that they are going to be able to get by without problems next year,” he said.
Overall production growth, however, may take longer as a number of smaller oil producers struggle with financial problems stemming from the lockdown and the country’s economic crisis, including a sovereign default that has restricted access to capital. A number of producers have defaulted on bonds, and with the economy poised to contract nearly 10% this year, the chance for getting back on track may take a while.
“The economy next year will grow from low depths,” limiting any upside for domestic oil demand, Sureda said.
Argentina consumes most of its oil production, exporting around 60,000 b/d, or 12%, according to Energy Secretariat data.
Before the health crisis, Argentina’s oil production had been recovering from a 28-year-low of 479,000 b/d in 2017, led by Vaca Muerta in northern Patagonia. It rose to average of 508,000 b/d in 2019 and surpassed 518,000 b/d in March, according to the the Energy Secretariat.