Shipping record volumes to a southern neighbor that has failed to expand its refining network to supply a fast-growing economy, U.S. Gulf Coast refiners are cashing in on rising fuel demand from Mexico.

Providing business worth more than $15 billion a year to refiners such as Valero, Marathon Petroleum and Citgo Petroleum and as Mexico becomes increasingly dependent on the United States for strategic energy supplies, the fuel trade could top a million barrels per day (bpd) at times in 2017.

The Mexican economy has been unable to increase its refining output to satisfy the consistent growth of its energy demand even as it expanded for 27 quarters in a row even amid a public austerity plan, and this is reflected in the rise in fuel imports.

A rapid reversal in energy trade between the two countries has been the result. According to the U.S. Energy Information Administration (EIA), as shipments of refined fuel heading south outnumber shipments of crude to the north, crude exporter Mexico will be a net oil importer from the United States in 2016 for the first time.

The United States’ net oil imports from Mexico stood at 1.45 million bpd just ten years ago.

A source at a refiner involved in the trade was quoted in the media as saying that profit margins for the exports are strong for U.S. Gulf Coast refiners.

“You’re getting very good values if you’re a Gulf coast supplier,” he said. “Freight has been dirt cheap too – so it doesn’t cost that much to move the barrels either.”

With profits at a five-year low in 2016, Mexico constitutes a bright spot in what has otherwise been a dark year the U.S. refining industry.

“Mexico’s appetite for U.S. gasoline and distillates has played a significant part in sustaining Gulf Coast refining margins,” said Sandy Fielden, director of oil and products research at Morningstar.

Barclays equity analyst Paul Cheng said that the exports also help to ease a supply glut in the U.S. market. he added that even for refiners that are not directly involved in the trade, that boosts profit margins industry-wide.

According to partial data based on shipping data from Thomson Reuters, Citgo Petroleum, Exxon Mobil and Marathon are among the top exporters of U.S. gasoline and distillates to Mexico to date in 2016 other than state-run Pemex. A full breakdown combining marine, road, rail and pipeline exports by company is not publicly available.

Data shows that while Marathon has shipped about 43,000 bpd. Last year, Valero Energy was the top exporter with nearly 62,000 bpd to Mexico, Citgo, owned by Venezuela’s state oil firm PDVSA, has exported nearly 57,000 bpd of fuels.

Publicly traded Gulf refiners are valued below their peers despite the rising volume of exports to Mexico. While Valero is at 12.51, compared to an industry median of 16.10 in oil and gas refining, Marathon is trading at 14.67 times its expected earnings.

By the government slashing the budget for oil giant Petroleos Mexicanos (Pemex), the  shortfall between demand and supply in Mexico has been exacerbated.

As Mexico made a loss on fuel sales at the pump while they were heavily subsidized rate, For decades, imports were a burden on state coffers. The government expects growth of 2-3 percent per year in coming years and Mexico’s fuel demand is around 2.04 million bpd.

Mexico is the world’s fourth-largest consumer of gasoline.

(Adapted from Reuters)

Categories: Economy & Finance, Uncategorized