Mexico Is Entering a Fuelmaking Revival. That’s Bad News for US Refineries

jievuybd2o]y7vzow(26fp)1_media_dl_2.png Pemex

Article content

(Bloomberg) — A decade-high resurgence in Mexican fuelmaking threatens to weigh on US refineries as demand from their largest fuel buyer fades, adding to worries about buildup of gasoline stockpiles in America.

Article content

Petroleos Mexicanos’ imports of gasoline and diesel fell to a 16-year low last year, according to company data. Imports declined as the state oil company operated its refineries at the highest rates in a decade. Meanwhile, the country’s largest refinery, Dos Bocas, is finally ramping up after several false starts since its inauguration nearly four years ago. 

Article content

Article content

Article content

Mexico’s fuel revival is bad news for US refiners, as the country historically purchases the most American-made motor fuels. The Latin American nation imported 726,000 barrels a day of gasoline and diesel in October, according to the latest data from the US Energy Information Administration. A drop in imports poses a problem for US refineries including Valero Energy Corp., Marathon Petroleum Corp. and Exxon Mobil Corp. as gasoline inventories in the US are the highest since the pandemic, while diesel stocks sit at a two-year high. 

Article content

Article content

The rise in fuel production is being driven largely by the ramp-up of the Dos Bocas plant. The refinery, also known as Olmeca, operated at 77.5% of it installed capacity in December, its best performance to date, according to company data compiled by Bloomberg. Fuel output is also getting a boost from a new coker unit at Tula refinery that converts sludgy fuel oil into higher-value fuels. The coker processes residuals from both Tula and neighboring Salamanca refinery. 

Article content

Pemex is expected to keep its refineries running hard at least through the Holy Week holiday in late March and early April, the second-busiest period for road travel in Mexico after December. Still, it’s unclear whether the company can sustain high rates as equipment is prone to breakdowns when pushed too hard. Last week, fires were reported at both the Dos Bocas and the Salina Cruz refineries. 

Article content

The uptick in Mexico’s domestic refining also spells uncertainty for US refiners who rely on heavy Mexican and Canadian crude oil for fuel processing, according to John Padilla, managing director at IPD Latin America, an energy consultancy.

Article content

“US refiners need heavy crude, and the US is rapidly losing Mexican and Canadian oil,” Padilla said. “Oil from Venezuela can’t fill the gaps as quickly as Trump would hope.”

Article content