Marine fuel rule could wreck demand for Mexican 'resid'

Mexico exported 65,692 b/d of its residual fuel oil production in the first quarter of 2019, down from 89,768 b/d exported in 2018.

The country exports around 47pc of its fuel oil production, but pending global marine fuel regulation that caps sulphur content at 0.5pc could severely limit demand. Mexican fuel oil has a sulphur content of around 4pc.

According to the US Energy Information Administration, 25,356 b/d of Mexican resid was exported to the US in January and February 2019, the bulk of which to Texas. Mexican resid is also sold in Panama and Singapore, among other countries, for bunkering. Residual fuel oil makes up about 25pc of Mexico's refinery output.

The expected demand drop-off for Mexican fuel oil could cause state-run Pemex to further reduce its refineries utilization rate in 2020.

Pemex produced 141,046 b/d of residual fuel oil in the first quarter of 2019, down 24pc compared with 185,102 b/d in 2018. The drop reflected a fall in crude processing to 560,140 b/d in the first quarter, from 611,594 b/d in 2018.

The Tula refinery accounted for 33pc, or 46,893 b/d, of Mexico's resid production, and the Salina Cruz refinery accounted for 31pc, or 43,735 b/d. Residual fuel oil makes up for 37pc of Tula's output. A coking unit project at Tula, which would reduce its fuel oil output, is yet to be finalized. The other four Mexican refineries — Salamanca, Minatitlán, Madero and Cadereyta — produced less than 17,000 b/d each of fuel oil in the first quarter.