Fuel prices in Mexico: gradual liberalization

(December 1, 2016)

For many years fuel prices in Mexico were directly set by the government. The objective was to have price stability and predictability. As the chart shows, despite fluctuations in crude oil prices, from 2010 to 2014 gasoline and diesel prices in Mexico increased steadily and with no fluctuations. Specifically, fuel prices were set to increase with the rate of inflation which was about 4 percent per year.

The appeal of that formula, however, disappeared when crude oil prices collapsed in the summer of 2014. With cheaper oil, fuel prices should have declined markedly IF the market was liberalized. These events gave impetus to a change in price setting policy that took about a year to implement at the end of 2015.

According to the new policy, retail fuel prices will be allowed to fluctuate with market conditions but only within a range set by the government. The range will be reevaluated every year and in 2017 the government will make steps to liberalize the import and export of oil products. Then, in 2018, the retail fuel market will also be liberalized so that fuel prices can move more freely with market conditions. More detail on these new policies can be found here.

Of course, liberalizing prices is relatively easy when prices are on the decline. If oil prices unexpectedly rise, the appeal of the new formula may be put into question by a public accustomed to fuel prices well below the world average.

Here are the latest gasoline prices and diesel prices in Mexico.

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