Mexico poised to receive more USGC refined products

Mexico is the top outside outlet for US Gulf coast refiners seeking buyers for fuel stranded by the Colonial pipeline shutdown, but not without some storage and arbitrage constraints.

A ransomware attack shut the Colonial pipeline last week, trapping gasoline, diesel and jet fuel at the US Gulf coast while cutting off consumers from new supplies along the Atlantic coast. Large volumes of European and Mideast Gulf gasoline is expected to replenish fuel supply along the east coast, but Gulf coast refiners face a lack of outlets while outright prices have continued to climb, limiting potential arbitrage out of the country.

Mexico, typically the largest buyer of US Gulf coast gasoline, is willing to take more products, but not without discounts and only limited volumes, sources say. PMI, state-owned Pemex's international trading arm, would be the top importer bringing fuel into Mexico. Yet the company has been struggling with financial constraints, and its storage units can only operate at 60-70pc of its 21mn bl capacity because of a lack of maintenance investment, Santiago Arroyo, head of retail and trading company Ursus Energy said.

"Whatever the circumstances, PMI has and will take the offers, even if it can only take 70-80pc of what they are offering," Arroyo said.

PMI in 2020 chose to forgo term import contracts in favor of more spot contracts, giving the company greater flexibility to take more cargoes when arbitrages are open.

But US Gulf coast prices rose yesterday on Nymex futures gains, as well as regional physical differentials. Gulf coast Colonial pipeline conventional gasoline prices rose to $2.07/USG, the highest levels in about two months. Colonial pipeline ultra-low sulphur diesel (ULSD) price rose to $1.97/USG, the highest level since January 2020.

In order to move barrels out of the region quickly, these fob prices will need to be discounted to make them more attractive for buyers in Mexico, as the alternatives may end up being more expensive.

At least four US Gulf coast refiners have chartered vessels for floating storage at the rate of $25,000-35,000/day. Citgo has reduced rates at its 425,000 b/d refinery in Lake Charles, Louisiana, as a result of the Colonial outage, and at least two other refiners are heard to have cut rates at crude and secondary units.

Mexico has seen some of its recent demand relieved by the recent restart of two refineries that were in unplanned shut-downs. The 285,000 b/d Minatitlan refinery has at least partially come back online this week — nearly two months ahead of schedule — after a fire shut it down in early April. The 330,000 b/d Salina Cruz refinery also began restarting some units earlier this month after a power outage disrupted operations around mid-April, traders said. Pemex did not confirm any outages.

Pemex gasoline inventories have fallen to 4.775mn bl as of the end of April, the lowest levels since late 2019. Diesel inventories are at 2.451mn bl, jet fuel at 811,000 bl and fuel oil at 1.254mn bl, as of the last week of March, according to the latest data of a separate weekly report from the energy ministry (Sener). Diesel inventories fell by 13pc from the previous week, already the lowest level in a year.

Beyond Pemex

The Colonial pipeline outage could present an opportunity for non-Pemex importers to take advantage of the independent network of fuel storage and transport infrastructure in Mexico. These companies include Valero, ExxonMobil, Koch, Marathon Petroleum, and Trafigura.

ExxonMobil, Marathon and Valero brought in 56,000 b/d — roughly 10pc of Mexico's average 2019-20 gasoline imports of 550,000 b/d. Valero, ExxonMobil and Koch brought in 43,000 b/d of diesel, or 22pc out of 200,000 b/d of imports, the government recently said.

Valero has plans for a new fuel storage terminal in Mexico's northern Monterrey area, after announcing plans in 2019 to build a total of 2.4mn bl in refined product storage capacity in Mexico, some of which is already operating.

By Sergio Meana and Chunzi Xu