Mexico Light Oil Vanishes From Markets, Leaving U.S. to Plug GapBy
Pemex sends Isthmus crude to its refineries and Maya abroad
Falling Mexico crude output is opportunity for U.S. shale oil
Pemex’s crude menu has just gotten simpler.
If it’s the traditional, heavier Maya you’re after, step right up, but traders with a palate for lighter, sweeter crudes will have to look elsewhere.
Isthmus exports fell almost 16 percent in November from the previous month while Pemex stopped sending Olmeca, Mexico’s lightest crude, for a third consecutive month, according to the latest data from Mexico’s state oil company Petroleos Mexicanos. Exports of heavier grades mostly comprised of Maya increased almost six percent to nearly 1.27 million barrels a day -- some 91 percent of Mexico’s total crude exports.
U.S. light shale oil, which has been growing as Isthmus and Olmeca decline, is the most probable candidate to fill the gap left by Mexico in Asia, an important buyer of Isthmus, said Erik Broekhuizen, head of tanker research at Poten & Partners Inc. in New York. “With less Isthmus crude available, they would look to their next door neighbors.”
In November, Pemex declared a force majeure on some Isthmus cargoes, delaying crude shipments at East Coast ports. Two of those crude shipments were made in December, while another -- the Suezmax vessel Sonangol Maiombe booked by Cosmo -- was forced to replace its order of Isthmus with Maya, according to a person familiar with the operations. Pemex declined to comment, stating that the company doesn’t disclose strategic information.
Switching to Sweet
Refiners in Asia, particularly in China, which is shifting toward a sweeter crude slate due to new sulfur requirements, are likely to buy U.S. light crude in place of Mexican supply, while the Middle East and Russia could also be contenders, said Jon Sudduth, a crude oil market analyst at Energy Aspects in London. Maya “still prices competitively in Asia, so they’re still buying Maya,” he said.
A number of factors have converged to wipe Mexican light crude off the export map, said Alejandra Leon, Latin America upstream director at IHS in Mexico City.
“Mexico’s light crude production has fallen and is expected to continue falling because fields are maturing,” Leon said by phone. “The refineries in Mexico are restoring operations and need more light crude that had previously been sent for export, while at the same time U.S. shale oil output is rising and taking the place of Mexico’s lighter grades.”
While lighter crudes may be off the menu for some time to come, new major discoveries in Mexico by private companies such as Italy’s Eni and a consortium including US-based Talos Energy, Mexico’s Sierra Oil & Gas and Premier Oil of the U.K. could eventually result in a revival of lighter Mexican grades over the next several years, said Leon.
Mexico’s six refineries have been operating at 41 percent of their capacity in the first 10 months of the year due to a series of natural disasters and unplanned outages stemming from a lack of maintenance. With the gradual return to normal operations at the Salina Cruz, Minatitlan and Madero refineries, lighter grades that had been sent for export are now needed to feed them. Mexico’s aging refineries depend on a mix of both heavy and light grades.
“If you keep the lighter crudes for domestic utilization, then you’ll get better product yields from that, rather than running more Maya,” said Sudduth from Energy Aspects. “And then use Maya as your export crude.”
Mexico could also start to import U.S. lighter crude as part of a swap announced several years ago, said Sudduth. In 2015, Mexico and the U.S. agreed to exchange some U.S. supply for Maya amid the broader lifting of U.S. oil trade restrictions.
“Given their current situation with declining production, Mexico’s going to have to look somewhere else” for light crude to feed its refineries, he said. “So, could they import? I think that they should, it would make more sense.”