Photographer: Luke Sharrett/Bloomberg

U.S. Refiners Open Export Spigot to Meet Latin American Need

  • Gasoline, distillate and propane shipments climb to records
  • Gulf Coast refiners process more crude than ever before

U.S. refiners exported record amounts of oil products last week, taking market share from struggling competitors in Mexico and the Caribbean.

Almost 4 million barrels a day of gasoline, distillates like diesel and heating oil, and propane left the country as refiners in Texas and Louisiana processed the most crude in at least 24 years. Demand has grown this year as competitors in Latin America sputtered out with maintenance issues, Andy Lipow, president of Lipow Oil Associates LLC, said by phone from Houston.

“The high exports are due to the poor refinery operations that we’re seeing in Mexico and Venezuela, creating a demand for record amount of exports off the Gulf Coast,” Lipow said.

Combined gasoline and distillate exports surpassed 2.5 million barrels a day last week, the most in government data dating back to 2010. Gasoline exports, which have more than doubled since August, have topped 1 million barrels a day three times in the past two months. The Energy Information Administration began providing weekly export figures based on real-time data in August.

The rising foreign demand has helped tighten the domestic market. January gasoline futures on the New York Mercantile Exchange have flipped to a premium versus February, indicating a prompt demand surge that will continue to coax refiners to make more fuels. Both the January Nymex gasoline and diesel futures contracts settled at highs unseen since 2015 on Thursday as they closed at $1.682 and $1.7037 a gallon, respectively.

U.S. refiners don’t have the Latin American market to themselves. China is also ramping up output to meet demand there. The Asian superpower has already shown signs of competing with the Americans for market share, exporting a record 2.85 million tons of products in November, or about 760,000 barrels a day.

“As they process more crude and they saturate the Asian markets, I expect that some of their products will make their way over to Central and South America,” Lipow said. Mexican refineries operated at 53 percent of capacity in the first 11 months of this year, government data show.

Demand from Latin America may not be as steady as its refinery woes have been this year. Next year Mexico will raise its conventional gasoline prices by 14 percent, which could limit driving demand in 2017 and beyond. And President-elect Donald Trump has promised to change the U.S. trade relationship with Mexico.

“Trump’s talking about undoing NAFTA or changing NAFTA a lot,” said Phil Verleger, president of the economic-consulting company PKVerleger LLC in Carbondale, Colo. “That suggests Mexican economic activity is not going to be so great for a while.”

U.S. independent refiner Phillips 66 continues to see export opportunities. Its LPG export vision came to fruition this month as the first export cargo from its new terminal in Freeport, Texas, departed Dec. 16.

"We have the options to either place product in the U.S. or export, and we pick the best value at the time," Phillips 66 spokesman Dennis Nuss said by e-mail. "We feel there’s still good demand across the globe for both gasoline and distillates out of the U.S."

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