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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Mexico Looks Overseas For New Oil Export Destinations

Two weeks ago, Mexican crude oil exports to the U.S. saw a 43 percent weekly drop to 290,000 bpd, versus a 52-week average of 561,000 bpd. The sharp drop was probably connected to the temporary suspension of operations at Mexican ports due to harsh weather, but as Bloomberg reports, it’s just part of a longer trend set to continue, prompting the country to seek alternative clients for its crude.

U.S. imports of Mexican crude reached a peak of 1.89 million bpd in February 2006 and have since then steadily declined, just as Mexico’s production has been declining. This year, production is set to slide below 2 million barrels daily, but the country’s National Hydrocarbons Commission is upbeat about the future, planning to make Mexico a larger producer than Venezuela and Brazil.

(Click to enlarge)

With U.S. refiners turning increasingly to Canadian crude – whether for price, quality, or political reasons – Mexican crude needs new markets. State major Pemex is already diversifying, and this diversification will have to intensify further as output grows. The two EIA charts showing the movement of Mexican and Canadian exports of oil to their neighbor are telling enough, suggesting a sense of urgency for Mexico’s producers.

(Click to enlarge)

It’s worth noting that the decline in the first four months of this year could be partially attributed to maintenance season for U.S. refineries, but given the rise of Canadian crude shipments south during the period, maintenance season kind of loses relevance for Mexican exports.

Asia and Europe are the natural alternatives, and as Bloomberg notes, Mexico has been increasing shipments of crude to these destinations, notably Spain, India, Japan, and South Korea, according to shipping and customs data compiled by the news provider.

South Korea could make one important market for Mexican crude: the country imports as much as 80 percent of the oil it needs and has been recently diversifying its suppliers. India could also become a major client for Mexico with its constant growth in oil demand and the good bilateral trade relations. Related: Low Oil Prices Force Abu Dhabi To Sell U.S. Assets

Last year, Mexican oil exports to the Asian nation accounted for 60 percent of its overall exports there. India is Mexico’s third-biggest export market and it could move up the ranking in the next few years. What’s more, Indian energy companies could join others in new exploration and production projects in Mexico now that the country is rushing to tap new deposits in its part of the Gulf of Mexico and on land.

And then there is China, which has been investing heavily in Latin America but has been extra delicate with Mexico because of its close ties with its northern neighbors. Now that the neighbor has plans to sever a lot of these ties, China is quietly making inroads: CNOOC won the rights to drill for oil at three offshore fields in two of the nine blocks tendered last December. Media at the time called CNOOC the big winner of the tender.

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As Mexico City and Washington drift further apart, unless something arrests this fall-out, chances are we will be seeing more Chinese energy companies join CNOOC – after all, China needs replacement for its mature, depleting fields.

By Irina Slav for Oilprice.com

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