Fuel Market is Getting a Little Tighter

Border crossing is still a lengthy proposition, pipelines are still shut down, and Pemex output continues to slide, all of which contribute to rising local fuel prices in Mexico. Right now, those prices are taking a serious bite out of consumer wallets. The administration has its work cut out for them in bringing both near- and long-term relief. The Mexican fuel market is a complex and dynamic animal, but the opportunity still supports interest from those willing to stomach the risks. Get the latest right here.


Prices at Record Highs

Prices at the pump across the three major transportation fuels (diesel, premium, and regular gasoline) saw prices reach all-time highs in Mexico. Regular and premium gasoline for March and April cost the consumer an average of 19.77 and 20.81 pesos per liter, respectively. Diesel saw an increase of 15% over previous year prices as pump prices averaged 21.46 pesos per liter.

The balancing of fuels in Mexico is a razor-thin proposition between the ever-declining internal production, receipts of exports, mainly from the U.S.Gulf Coast, and an aging and limited infrastructure tasked with warehousing and distributing fuels across the country. Small blips in any of these variables can push prices higher and recent prices are likely a combination of supply factors including Pemex production and restricted cross border flows.

To help reign in prices, the Mexican government resumed a fiscal stimulus (the last time it was implemented was November 30, 2018) which reduces the IEPS tax on regular gasoline. By the end of March, the IEPS deduction reached 1.5 pesos per liter, or approximately 31.1% of IEPS tax on gasoline. But with April prices holding flat, the government may feel compelled to manipulate the tax component in an attempt to appease consumers.


United States–Mexico–Canada Agreement (USMCA) sees Progress in Mexico

Mexico recently passed a reform aimed to benefit workers who require that union workers have secret ballots in elections as well as when ratifying collective bargaining contracts, a change meant to ensure that the unions are independent of management’s influence. 

While the White House hailed the improvement as greater labor justice for Mexicans, U.S. Democrats, who have stalled sending the USMCA to the House for approval, have yet to support the reform as sufficient progress.

Ratification of USMCA, however, is imperative to both the U.S. and Mexico in regard to the energy trade. The value of U.S. exports of petroleum products nearly tripled to a record high of $30.5 billion in 2018. Petroleum products account for most of the value of energy exports from the U.S. to Mexico. In 2018, Mexico received over 1.2 million bpdof petroleum products, valued at more than $30 billion. U.S. exports of petroleum products to Mexico made up 22% of all petroleum products exported from the U.S. last year. Most of these exports were finished motor gasoline and distillate fuel oil.

The U.S. and Mexico are the most logical of trade partners and trucks and marine vessels will continue to deliver fuels from the U.S. to Mexico. For long-term relations, having a firm agreement in place will lessen the uncertainty.


Can it Last? More Positive Results on Fuel Theft Measures

Aside from the aggressive commitment to revamp Pemex operations, the other pillar of the Lopez Obrador vision to restore the energy sector in Mexico was the assurance to confront the massive financial impact from theft and corruption. The endemic problem was estimated to account for $2.5 billion or more in refined product.

As part of the first quarter financial results, the CEO of Pemex, Octavio Romero Oropeza, reported that fuel thefts for the period were down 95% from November 2018, when 81,000 bpd went missing. April theft was described as only 4,000 bpd. The ability to keep and sell all of the additional product resulted in an increase of nearly 12 billion pesos to Pemex or $630 million U.S.

AMLO has yet to fully open the valves on the national network of pipelines for refined fuels and has relied heavily on a newly acquired fleet of tanker trucks and rail cars to transport fuels across the country. 

There is no mention of the increased costs associated with the effort to protect fuels but the ability to report substantial progress is probably what is most important to the administration today. However, the costs are in the company’s (or government) results somewhere. An additional strategy to reopen the pipelines has been to encase theft hotspots in concrete to prevent or deter illegal tapping. To be sure, the deployment of 10,000 security forces, fixing and encasing pipelines, acquiring 600 trucks, the incremental cost to operate a huge fleet or trucks and rail cars, the incremental pipe vs truck economics, etc. are all “real” cash needs to offset the 12 billion peso savings.

The big question is,“Can it last?” The cartels are organized and well-run operations, and they won’t stand idly by as huge volumes of cash get pinched out of their system. To keep winning the war on theft, AMLO and his team will need to stay one step ahead in managing the business.


Inspired to jump into the Mexican market? Click here to contact our international markets team.


Chad Smith
Senior Vice President of Terminal Services