Mexico’s Nationalist Policies Squeezing Oil Trade Margins

One of the world’s largest oil traders, Trafigura, has been forced to scale back its oil trading business in Mexico thanks to the country’s nationalist policies taking a toll on margins. Trafigura has recorded margin compression due to fuel subsidies the Mexican government announced last year to help the country cope with inflation. The subsidies mark yet another setback for the commodities trading firm, following the cancellation of its fuel-import license and ban  from doing business with Petroleos Mexicanos’s PMI oil-trading unit amid allegations of corruption and dealing in contraband supplies. Although the permits were reinstated last year, Trafigura has not been able to do much because of the fuel subsidies.

Since becoming Mexico’s president in 2018, Obrador has undertaken various radical reforms in the country’s energy and power sectors as he endeavors to achieve elusive energy independence. Two years ago, he announced a rather controversial plan to phase down oil imports, reversing a major reform plan enshrined in the constitution in 2013. 

As part of the plan, Mexico’s NOC Petroleos Mexicanos aka Pemex, was to cut crude oil exports from over a million barrels per day to just 435,000 barrels a day in 2023. The move is part of President Andrés Manuel López Obrador’s (AMLO’s) drive to lower imports of costly refined products, such as gasoline and diesel, and instead rely more on domestic production. “Practically 100% of Mexican crude will be refined in our country,” Pemex head Octavio Romero Oropeza said at the much-heralded opening of a new refinery in the southeastern state of Tabasco. 

The reforms have angered the U.S., Canada and Europe and triggered bipartisan calls for the U.S. to get tougher on its southern neighbor. These developments increase the risk of another full-blown trade war between the U.S. and Mexico. The U.S. Energy Information Administration (EIA) has reported that energy trade in 2022 between the United States and Mexico totaled $81.9 billion in real prices, an all-time high. U.S. energy exports to Mexico in real prices totaled $55.8 billion in 2022, up from the previous high of $45.4 billion in 2021, again an all-time high.

The U.S. was a net importer of crude from Mexico but a net exporter of petroleum products and natural gas. U.S. crude oil imports from Mexico averaged 536,000 barrels per day (b/d), a 9%Y/Y increase. Total value of crude imports was $20.7B, good for a 47% increase in large part due to Brent crude oil spot price averaging $103 per barrel in 2022 compared with $77/b in 2021. 

By Charles Kennedy for Oilprice.com

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