June 7, 2019
By Collin Eaton and Marianna Parraga
HOUSTON/MEXICO CITY (Reuters) – The Trump administration’s clashes with Mexico could further squeeze U.S. imports of critical heavy crude oil from Latin America, which have fallen to their lowest in nearly three decades following sanctions on Venezuela, U.S. government and Refinitiv Eikon data shows.
The declines could worsen if U.S.-Mexico talks on curbing immigrant border crossings fail, and U.S. President Donald Trump levies 5% tariffs on Mexican goods beginning Monday, traders said.
Oil refiners worldwide have struggled to secure heavy crude supplies following U.S. sanctions on Venezuela and Iran and output cuts by the Organization of the Petroleum Exporting Countries (OPEC).
The United States relies on heavy crude to blend with lighter U.S. oils to produce gasoline and other fuels, and Venezuela and Mexico have traditionally been among the biggest suppliers of that oil to the United States.
Tariffs would add upward pressure to Latin American heavy crude prices that have already pushed U.S. refiners to seek oil from more distant suppliers in West Africa, traders and analysts said.
U.S. imports of Latin American crude fell to 1.4 million barrels per day (bpd) in March, the lowest since December 1990, according to the most recent data from the U.S. Energy Information Administration.
The trend continued through May, according to U.S. Customs and Refinitiv Eikon data, which shows U.S. imports from Latin America’s main suppliers dropped to 1.15 million bpd.
U.S. refiners that import most Mexico crude: https://tmsnrt.rs/2KfSmQL
Together, U.S. crude imports from Mexico and Venezuela were at their lowest in at least a decade at a combined 700,000 bpd in the February-May period, following sanctions on state-run Petroleos de Venezuela (PDVSA). In May, after several months of decline, overall Latin American exports worldwide recovered a little bit to 4.2 million bpd, from 4.1 million in April.
Mexican crude production has been falling for a decade and a half. The new government of Andres Manuel Lopez Obrador, wary of Mexico’s reliance on U.S. gasoline, is pushing state-run Pemex to refine more of the country’s crude oil, instead of exporting most of it.
In May, U.S. imports of Mexican crude fell 16% from April to 606,000 bpd as demand for heavy crude worldwide is boosting the price of Mexico’s Maya grade and other Latin American crudes, traders said. But the rising prices have created more opportunities for more barrels to go Asia.
“It makes sense for Mexico to send more to Asia, given shortages there,” said Sandy Fielden, an analyst at Morningstar. “Refiners will pay more for heavy crude. Mexico will get better prices as a result.”
Mexico remains key crude supplier to U.S.: https://tmsnrt.rs/2Kdg404
MAYA HEAVY TO ASIA
Last month, four large vessels carrying Mexico’s heavy Maya crude departed for Asia: Two to India and two to South Korea, Eikon data shows. The combined cargoes held 6.9 million barrels, up from 5.2 million barrels shipped in April.
U.S. refiners have warned the Trump administration that tariffs would make Mexican crude imports less competitive, boost fuel costs, and squeeze refiners’ profit margins.
“Simply put, it will increase the cost of heavy crude coming into the U.S.,” a trader said.
Venezuelan crude exports to key U.S. refiners: https://tmsnrt.rs/2WK05NV
Several of the largest importers of Mexican heavy crude also relied on Venezuelan supply before sanctions. Refineries owned by Valero Energy Corp and Chevron Corp were among the regular buyers of both Mexican and Venezuelan grades, according to U.S. Energy Department figures.
The United States did not import any Venezuelan crude in May, according to Eikon. U.S. sanctions on Venezuela’s state-run PDVSA bit deeper into the nation’s imports of Venezuela crude, which fell to zero last month, after the last legal cargoes were discharged in April, the data showed.
One Latin American country offsetting the drop from Mexico and Venezuela was Brazil, which in May delivered 185,400 bpd into the United States, up from a mere 14,800 bpd in April, Eikon data shows.
(Reporting by Collin Eaton in Houston and Marianna Parraga in Mexico City)