Chile Prepares for Fuel Price Hike as Summer Season Concludes

Upcoming Fuel Price Adjustments

Chilean consumers are facing an impending increase in gasoline prices, with the state-owned National Petroleum Company (ENAP) announcing potential adjustments of up to 18.2 pesos per liter. This change is expected as the country transitions out of its summer season, which officially concludes around March 20th.

ENAP's role in the Chilean fuel market is primarily that of a producer and wholesale marketer of hydrocarbon derivatives to distribution companies, which then sell to the retail market. Therefore, ENAP informs about price variations rather than directly setting the final consumer prices.

Understanding the Price Stabilization Mechanism (MEPCO)

Fuel prices in Chile are governed by the Fuel Price Stabilization Mechanism (MEPCO), established by Law Nº 20.765 in 2014. This mechanism aims to mitigate the volatility of fuel prices, which are heavily influenced by international market fluctuations. The Macroeconomic Policy Division of the Ministry of Finance is responsible for determining a variable component (CV) on a weekly basis. This component is added to the Specific Excise Tax (IEC) and can be positive (acting as a tax), negative (as a subsidy), or zero.

The primary objective of MEPCO is to ensure that weekly changes in ENAP's 'Wholesale Price' do not exceed 0.12 UTM per cubic meter, thereby providing a degree of stability for consumers.

Factors Influencing the Increase

The anticipated price hike is a reflection of several global and domestic factors. International oil prices, such as ICE Brent crude, and the refining crack spread in the US Gulf Coast, significantly impact the cost of imported fuels. Additionally, the exchange rate between the Chilean peso and the US dollar plays a crucial role in determining local fuel costs.

Historically, fuel price adjustments under MEPCO occurred weekly. However, a modification to the law in late January 2023 changed the frequency of these adjustments to every three weeks, aiming to provide more predictable price movements for consumers.

Seasonal Context and Consumer Impact

The timing of this price increase coincides with the end of Chile's summer season, which typically runs from December to February, with autumn beginning in March. The conclusion of the peak travel season might see a shift in demand patterns, though the underlying international market forces and the MEPCO mechanism remain the primary drivers of price changes. Consumers across Chile will likely feel the impact of these adjustments at the pump as the new pricing structure takes effect.