Gulf Refiners Pay More for Mexican Crude as Fuel Demand Soars

  • Discount cut to $1.80 per barrel in May vs. $2.75 in April
  • Gasoline consumption forecast to increase 1.4% in 2016

Mexican heavy crude became more expensive for U.S. Gulf Coast refiners as gasoline demand surges ahead of the summer driving season.

The trading arm of Petroleos Mexicanos cut the discount on Maya crude for Gulf refineries to $1.80 per barrel in May, the narrowest since July, down from $2.75 in April. Gasoline demand is at its highest for this time of year in at least three decades.

"Demand has been pretty good for gasoline, and we’re not even into the peak season yet," said Sam Margolin, lead analyst at Cowen & Co. "That’s the primary driver."

As low prices at the pump encourage more driving during the summer months, it’s reasonable to expect refineries running at high utilization rates, he said. Gasoline consumption is forecast to increase 1.4 percent in 2016, based on an estimated 2.6 percent increase in highway travel, according to the U.S. Energy Information Administration.

Refineries in the U.S. are also returning from maintenance season, another factor affecting demand, said John Auers, executive vice president at Turner Mason & Co.

In the past two years it was even worse for Gulf Coast refineries, which account for more than half of the country’s processing capacity. Last May, the discount to a formula of benchmark prices was $1.20 a barrel and just 45 cents the year before.

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