European market participants have considered it profitable this week to ship 10ppm diesel from Pemex's 340,000 b/d Olmeca refinery at Dos Bocas in Mexico to Europe, highlighting further commercial opportunities for one of the Atlantic basin's newest refineries.
Arbitrage economics have been workable for Pemex to fix road diesel cargoes to Europe on 13-14 January, sources told Argus. One trader said it was a "theoretical" arbitrage, as Pemex previously said refined product sales abroad would be aimed mainly at US, Caribbean and Central American buyers.
Olmeca is currently in a ramp-up phase, and the refinery is processing crude above 50pc of nameplate capacity after starting to operate both its refining trains in recent months. The refinery is in a unique position to supply European-compliant road diesel, as it appears to be the sole refinery in Mexico that can produce diesel containing less than 10ppm sulphur.
The refinery exported 13 cargoes of 10ppm diesel last month, according to Kpler — a record high — with export volumes of 57,000 b/d. Export levels this month stand at 42,000 b/d. The US and Puerto Rico have been the only signalled destinations for diesel exports since they began in March last year, while the New York Harbour (NYH) region had been the sole destination for exports this month.
Mexico rarely exports jet fuel, by contrast, and Pemex is not planning to change this as output is low in proportion to domestic consumption.
Olmeca could start to sell 10ppm diesel to Europe in one-two months time once northeast US temperatures rise, according to a European distillates market participant. The sale of Olmeca diesel into the NYH region suggests that the diesel specification on offer from the refinery may have stricter German winter diesel properties given the temperature range in the northeast US, the source said.
Higher diesel availability in the US may dampen US buying interest, giving way to greater European bidding activity. Olmeca-Europe diesel flow could "make sense" as diesel stocks in the US Gulf coast refining hub "are looking very full", one European analyst said. Total USGC distillate fuel stocks, which include 10ppm diesel, hit a 53-month high of 50.12mn bl in the week to 2 January, according to the EIA.
Europe could be in the market for sources of alternative distillate supply in the coming months, potentially including Olmeca diesel. The EU will ban the import of oil products refined with Russian crude from 21 January. This may lead to a reduction of supplies from Turkey and India, where Russian crude continues to form a part of refinery feedstocks. And Nigeria's 650,000 b/d Dangote refinery is marketing its diesel to African buyers, potentially strengthening Pemex's hand as a source of relatively proximate Atlantic basin distillate supply.
