By Joshua Brown & Richard Capuchino
March 12, 2014
The first domino of what could be a new page in the shifting international crude market fell in late February when Cosmo Oil imported a cargo of Mexican crude to its refinery in Japan.
This seemingly insignificant transaction actually tells yet one more story in the larger tale about the changes in crude exports, especially for countries that once had a firm grasp on the US marketplace.
The surge of domestic light crude production in the US has pushed out imports of international sweet grades, forcing long-time exporters to look elsewhere to sell off their supply.
Few other countries have felt this ripple effect like Mexico. Mexico has long been one of the biggest crude suppliers to refineries in the US Gulf Coast, with PADD III bringing in an at least 1.075 million b/d every year from 1996 to 2011, according to data from the US Energy Information Administration.
Increases in light crude production like Eagle Ford or Bakken have hit imports of Mexican grades such as Olmeca and Isthumus, which are also light. As a result, these two grades are being pushed out of the US Gulf, with Isthmus moving increasingly to the US West Coast and to Asia, and Olmeca moving to Europe.
In early February, PMI, the export arm of Mexican state oil company PEMEX, sold Olmeca into India for the first time. A half-million barrels of it were loaded on to a VLCC with 1.5 million barrels of Maya headed that way, according to a report by Platts’ Jacqueline Puig.
Mexican crude imports into PAD III topped one million b/d in just four individual months in 2012 and 2013, hitting a low of 593,000 b/d in March 2013, according to EIA data. Meanwhile, overall imports into PADD III reached a 21-year low of 93.788 million barrels in February 2013.
The decrease in Mexican imports also has been aggravated by the steady drop in Mexican production. Mexico’s crude production has declined sharply in the last 10-plus years, though the rate of decline has slowed. In 2004, according to the BP Statistical Energy Review, Mexico produced 3.83 million b/d. It plummeted more than 700,000 b/d through 2008, to 3.165 million b/d. In 2012, it was 2.911 million b/d. but was seen as being down to about 2.5 million b/d last year.
Now, with production from the Bakken Shale play and Permian Basin nearing one million b/d, PADD III is swimming in light crude. It has less need for a dwindling supply from Mexico.
So the sales of Olmeca to Europe and Isthmus to the West Coast and Asia are signs of that shift. When Cosmo Oil chartered the Suezmax-sized cargo laden with Isthmus from Mexico on February 26, it was the first time such a deal had been struck in 10 years, according to sources with Cosmo Oil and PMI. The countries will get together again on March 28 for another Suezmax-sized crude cargo filled with Isthmus, a sign that this could be a lasting partnership.
The sales are not just one-off transactions. Pemex this year earlier set formulas for Olmeca crude into Europe (based on Platts Dated Brent assessment) and for Isthmus sales to the West Coast.
More doors will be forced open in the international crude market as the US continues to increase its domestic production. Mexico is starting to adjust to that reality.
This seemingly insignificant transaction actually tells yet one more story in the larger tale about the changes in crude exports, especially for countries that once had a firm grasp on the US marketplace.
The surge of domestic light crude production in the US has pushed out imports of international sweet grades, forcing long-time exporters to look elsewhere to sell off their supply.
Few other countries have felt this ripple effect like Mexico. Mexico has long been one of the biggest crude suppliers to refineries in the US Gulf Coast, with PADD III bringing in an at least 1.075 million b/d every year from 1996 to 2011, according to data from the US Energy Information Administration.
Increases in light crude production like Eagle Ford or Bakken have hit imports of Mexican grades such as Olmeca and Isthumus, which are also light. As a result, these two grades are being pushed out of the US Gulf, with Isthmus moving increasingly to the US West Coast and to Asia, and Olmeca moving to Europe.
In early February, PMI, the export arm of Mexican state oil company PEMEX, sold Olmeca into India for the first time. A half-million barrels of it were loaded on to a VLCC with 1.5 million barrels of Maya headed that way, according to a report by Platts’ Jacqueline Puig.
Mexican crude imports into PAD III topped one million b/d in just four individual months in 2012 and 2013, hitting a low of 593,000 b/d in March 2013, according to EIA data. Meanwhile, overall imports into PADD III reached a 21-year low of 93.788 million barrels in February 2013.
The decrease in Mexican imports also has been aggravated by the steady drop in Mexican production. Mexico’s crude production has declined sharply in the last 10-plus years, though the rate of decline has slowed. In 2004, according to the BP Statistical Energy Review, Mexico produced 3.83 million b/d. It plummeted more than 700,000 b/d through 2008, to 3.165 million b/d. In 2012, it was 2.911 million b/d. but was seen as being down to about 2.5 million b/d last year.
Now, with production from the Bakken Shale play and Permian Basin nearing one million b/d, PADD III is swimming in light crude. It has less need for a dwindling supply from Mexico.
So the sales of Olmeca to Europe and Isthmus to the West Coast and Asia are signs of that shift. When Cosmo Oil chartered the Suezmax-sized cargo laden with Isthmus from Mexico on February 26, it was the first time such a deal had been struck in 10 years, according to sources with Cosmo Oil and PMI. The countries will get together again on March 28 for another Suezmax-sized crude cargo filled with Isthmus, a sign that this could be a lasting partnership.
The sales are not just one-off transactions. Pemex this year earlier set formulas for Olmeca crude into Europe (based on Platts Dated Brent assessment) and for Isthmus sales to the West Coast.
More doors will be forced open in the international crude market as the US continues to increase its domestic production. Mexico is starting to adjust to that reality.
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