Mexican March retail fuel prices fell in step with US

The Mexican retail price for regular gasoline dropped by 22pc in March — the only such fall since at least 2017 and in unusually close step with declines in the US.

Mexico's national regular gasoline price average fell to Ps15.28/l ($2.33/USG) between 29 February and 31 March in the wake of the coronavirus pandemic that has severely reduced demand, according to data from the energy regulatory commission (CRE). Prices in the US over the closest comparable period — 2-30 March — fell by 19pc from $2.37/USG to $1.88/USG, according to weekly averages from the US Energy Information Administration (EIA).

While prices in Mexico track those in the US Gulf coast over the longer term, a fuel excise tax mechanism and state-owned Pemex's wholesale fuel price policies typically cause the domestic price response to lag.

For example, when Hurricane Harvey hit the Texas coast in August 2017, retail prices in the US for regular gasoline surged by 13pc to $2.60/USG in the first week of September 2017 from the first week of August 2017. In Mexico regular gasoline prices increased by only 1pc in that same month. Mexico was still in the process of lifting the last of its official fuel price caps in late 2017.

Mexico's government has more mechanisms to soften the impact of international prices spikes, as it can increase fuel tax deductions that it usually changes weekly. Yet it has never added a premium to offset abrupt price declines.

Declines for premium gasoline and diesel were shallower.

Premium gasoline prices in Mexico fell by 18pc to Ps16.78/l on 31 March from 29 February.

Diesel prices fell by 8pc, the smallest drop of the three fuels, to Ps19.30/l, as agricultural and industrial uses support demand.

Price declines at Mexico's fuel pumps are still far behind wholesale prices in its main import source of the US Gulf coast. Conventional 87-gasoline delivered to Mexico's east coast from the Gulf coast fell by 68pc to 45¢/USG on 31 March from 29 February, according to Argus assessments. Diesel prices delivered through the same route fell by 35pc to 92¢/USG in the same period.

Yet Mexican retailers may more quickly feel the effects of lower prices, as they still make a larger portion of their income from fuel sales. Retail fuel margins in Mexico are close to 9pc according to retail association Onexpo, while margins in the US are normally razor-thinand fuel is used as a hook for convenience store purchases.

In the US retail operators are reporting higher grocery sales, primarily for pantry items such as milk and bread.

Mexican retailers have started to use fuel stations to increase sales in convenience stores, especially after Mexico's 2014 energy reform. Some supermarkets have opened stations in their parking lots. Yet convenience stores at stations still typically have more basic offerings and no delivery services.

By Sergio Meana