Mexican Fuel Oil Export To USGC: Market Challenges And Opportunities

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Pemex’s Rising Fuel Oil Production

The most recent company data from Pemex – the Mexican state-owned energy producer – shows fuel oil production continues to rise sharply as the export market remains the primary outlet for the extra barrels.
The US remains a logical trading partner, with steady demand segments in the form of Gulf Coast refinery cokers and marine fuel blending markets.

“Still ample [fuel] oil to USGC,” a source said April 29 of Mexico-USGC flows. “Refinery runs are high and politically driven, crude exports down.”

Production Surge & Export

Pemex’s fuel oil output rose to an average of 348,500 b/d in March, up 49,300 b/d from February’s registered output, company data shows. It is the highest monthly production since July 2010, when output was 355,499 b/d.

The majority of Pemex’s fuel oil output for March again found its way into the export market – a record 278,300 b/d, topping the previous high-water mark of 262,800 b/d, which came a month earlier in February. Pemex’s export figures date to January 1990, company data showed.

While there is consistent agreement from market sources on the trend of Mexican fuel oil exports to the US continuing, some players cite the availability of cargo-size vessels as potentially having a limiting impact.

“From what we see, there is simply too much oil in the Mexican system and getting any vessels is the main constraint,” the source said of demand in the Panamax freight market.

Panamax and USGC Market

Others, however, said fundamentals have not yet reached that degree of tightness but could in the near term should international appetite for Mexican fuel oil wane.

“No homes for the oil it seems,” a second source said of Mexican fuel oil in the spot market. “If you load every available Panamax and turn them into floating storage without orders then you get a [freight] supply issue, but we’re not there yet.”

Platts assessed 50,000-mt runs for East Coast Mexico-USGC freight April 29 at w195, or $12.27/mt, range bound since April 18, with market feedback pointing to steady demand in recent weeks.

Another source also cited a more long-term supply crunch for Panamaxes servicing the East Coast of Mexico, but said more recently conditions have not been impacted.

“Panamaxes have definitely dwindled over the years but [current players] have enough to supply East Coast Mexico,” the third source said.

Market Insights & Analysis

Platts assessed US Gulf Coast HSFO barge pricing down 53 cents day on day at $76.95/b, putting the physical marker at a premium of $1.10/b to the May USGC HSFO swap. The spread had been at 98 cents/b to close the week ended April 26, with the USGC HSFO M1-M2 swap structure flipping from a contango to backward in recent days.

In upstream energy markets, the June Brent contract fell $1.02/b on the day to $88.39/b.

Platts is part of S&P Global Commodity Insights.

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Source: S&P Global