Mexican Export Cuts and Canadian Output Rerouting Strain Heavy Crude Supplies

Mexico's state-owned energy company, Petróleos Mexicanos (Pemex), has instructed its trading unit to cancel up to 436,000 barrels per day (Mb/d) of crude exports for April to focus on processing domestic oil at its new 340 Mb/d Dos Bocas refinery and existing plants. This decision has created uncertainty among heavy crude-focused refineries in the US Gulf Coast, as Mexico is the top international supplier of heavy crude to the region.

Why this matters: The reduction in heavy crude supplies will have a ripple effect on the global oil market, impacting refiners' costs and potentially leading to increased fuel prices for consumers. The reduction in heavy crude supplies will have a ripple effect on the global oil market, impacting refiners' costs and potentially leading to increased fuel prices for consumers. The global economy relies heavily on oil, and any disruptions to supply chains can have far-reaching consequences for industries and individuals alike.

The cancellation of Mexican crude imports could be problematic for US refiners, as they rely on heavy crude to optimize operations and yields. Canadian heavy crude oil exports from the Gulf Coast in March 2024 averaged 154 Mb/d, well below the February total of 253 Mb/d and less than half the 343 Mb/d pace of a year ago. The combination of decreased crude oil supplies from Mexico and Canada is expected to drive up refiners' costs and affect industries.

Additional factors impacting heavy crude supplies include the upcoming startup of the Trans Mountain Pipeline expansion (TMX) and the recent reinstatement of US sanctions on Venezuelan crude. The planned maintenance of the Wink to Webster (W2W) pipeline in June, which will take 1.5 million barrels per day (MMb/d) of capacity offline, is expected to further reduce heavy crude supplies.

The situation in the Atlantic basin is further complicated by OPEC+ oil producers announcing voluntary output cuts totaling 2.2 million barrels per day for the first half of 2024. This brings the total pledged cuts to about 5.86 million bpd, equivalent to 5.7% of daily world demand. The cuts are led by Saudi Arabia and Russia, with several other OPEC+ members also contributing.

As heavy crude supplies tighten in the Atlantic basin, refiners face the challenge of maintaining utilization rates and optimizing their operations. The shortage of heavy crude grades like Mexico's Maya could lead to decreased refinery utilization rates, impacts on overall crude runs, and potential tightening of US exports in the future. Refineries built to run heavy crude may need to explore alternative feedstocks and tackle the complex process of transitioning feed slates to mitigate the impact of reduced heavy crude availability.

The evolving situation highlights the interconnectedness of global oil supply chains and the far-reaching implications of production decisions made by major exporters. Refiners in the US Gulf Coast and beyond must adapt to the tightening heavy crude market and find innovative solutions to maintain profitability. As RBN's downstream consulting practice, Refined Fuels Analytics (RFA), anticipates, the Dos Bocas refinery"may not achieve significant fuel output until 2026, with full ramp-up extending to 2028, assuming it reaches operational levels at all."

Key Takeaways

• Mexico's Pemex cancels 436,000 bpd of crude exports to focus on domestic refining.
• US Gulf Coast refiners face heavy crude shortages, impacting costs and fuel prices.
• Global oil market affected by reduced supplies from Mexico, Canada, and OPEC+ cuts.
• Refiners must adapt to tightening heavy crude market, explore alternative feedstocks.
• Dos Bocas refinery may not reach full output until 2028, further impacting supplies.