Argentinean oil producer Yacimientos Petrolíferos Fiscales (YPF, quote) is trading lower again today after yesterday’s precipitous sell-off following the decision by an Argentinean province to revoke YPF’s oil concessions.
Previous confiscations were of little material effect to the company as they were from regions with little hydrocarbon production. However, the most recent revocation included the Chubut concessions which represent about 10% of the company’s domestic output.
Compounding the issue, local newspapers in Argentina reported a rumor that the government is planning to nationalize the country’s oil and gas industry.
While such a maneuver would seem like nothing more than journalistic embellishment in other emerging markets, under the Cristina Kirchner administration, a nationalization of the oil industry seems all-too plausible.
After last month’s attempted takeover of oil concessions in the Falkland Islands, combined with last week’s change in the central bank’s mandate — which The Economist derided as a move to make the central bank the government’s “piggy bank” — populist ploys like rhetoric to re-nationalize previously state-run YPF have become the norm in Argentina.
Overt appeals to populism under Kirchner are often indicative of more serious underlying problems; in this case, the Argentinean economy is struggling with severe inflationary pressure. The Economist claims that “the gap between the official exchange rate and the rate in the swap market has widened to nearly 20%.”
Argentina (ARGT, quote) will suffer as long as President Kirchner continues to promote a hostile business climate towards both foreign and domestic companies, while neglecting the very real inflationary threats to the economy.
Given that neither President Kirchner nor anyone else in her administration has indicated a willingness to backtrack on these positions, YPF, ARGT, and REPYY will all likely remain under pressure.
Traders should consider shorting both YPF and ARGT, as these entities are unlikely to move upwards until the Argentinean government changes tack.