Brent crude futures have established a firm footing over the $90 per barrel mark and not even a brief opening for a potential ceasefire in Gaza managed to pull it lower. Mexico cutting oil exports will ensure bullish sentiment continues to build in the coming weeks, with further directionality set by the US and Chinese inflation numbers this week, potentially even paving the way for a climb closer to $95 per barrel.
Mexican state-run oil producer Petroleos Mexicanos (PEMEX) is planning to cut at least 330,000 barrels per day (bpd) of crude exports in May, leaving customers in the United States, Europe and Asia with a third less supply, two sources said.
According to Reuters, the plan follows the withdrawal of 436,000 bpd of Maya, Isthmus and Olmeca crudes this month, ordered by Pemex to its trading arm PMI Comercio Internacional because it needs to supply more to its domestic refineries as it targets energy self-sufficiency.
Pemex has no option other than applying monthly cuts to exports after its crude production in February fell to the lowest level in 45 years and the country’s refineries, including a new facility in the port of Dos Bocas, began taking in more crude oil.
Dos Bocas alone is expected to need an average of some 179,000 bpd of crude this year, according to official figures.
Neither Pemex nor its trading arm immediately responded to a request for comment by Reuters.
Over the weekend, a deadly fire at a key offshore platform in the Gulf of Mexico also meant Pemex had to halt production at several wells, one of the sources said. It is not clear how many barrels would be cut as a result.
Pemex exported 1.03 million bpd of crude last year, and 945,000 bpd in January-February.
Mexico’s energy ministry expects domestic processing to increase to an average of 1.04 million bpd this year from 713,300 bpd in 2023, leaving fewer barrels available for exports in the remainder of the year.
“May cuts are expected to be between 10 million and 14 million barrels (in total),” another source said.
Even though the cuts are significant and expected to be applied on a monthly basis from April onward, Pemex’s trading arm has not declared force majeure over supply contracts, the sources, who are traders, said.
Most of the contracts include provisions to allocate monthly volumes of specific crudes depending on availability, the sources added. The volumes are agreed mid-month.
Pemex and the government of President Andres Manuel Lopez Obrador said earlier this year that the Dos Bocas refinery, in Mexico’s Tabasco state, would start producing gasoline and diesel in the first quarter.
While the refinery has begun processing crude in recent months, it has yet to contribute to the domestic market with finished motor fuels.
Apart from the increased local demand, dwindling reserves – especially at old Gulf of Mexico fields – is another challenge, a separate source, at the energy ministry, said.
There have been “discrepancies” in Mexico’s data on reserves, the source said, adding that these currently overestimate both the amount of crude oil Pemex can technically recover at a cost that is financially feasible, and the quality of the crude oil itself.
“The prognosis for the future is not encouraging,” the source said. “The (production) decline is unavoidable.”
====== Reuters ======
