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Mexico’s Pemex Explores New Markets Amid U.S. Tariffs
MEXICO CITY (Reuters) – In a strategic move to mitigate the impact of recently imposed tariffs by the U.S. government, Mexico’s state-owned oil company, Pemex, is actively seeking buyers in Asia and Europe. This initiative comes in light of a 25% tariff on Mexican crude oil imports imposed by President Donald Trump, a significant blow to the Mexican economy.
While Canadian exports received a reprieve with a reduced 10% tariff, the higher rate directly affects Mexican crude, which was a substantial contributor to the country’s oil revenue. In the previous year, Pemex reported exporting 806,000 barrels per day (bpd), with a notable 57% of those exports flowing into the U.S. market. However, recent data indicates a dramatic drop in exports, with January figures showing a 44% decline year-on-year, settling at 532,404 bpd—the lowest in decades.
Shifting Focus to Alternative Markets
The decision to pivot to other markets is driven by Pemex’s need to adapt to the new economic landscape. Current trade data highlights that while some crude is sent to markets in Europe and Asia, particularly in India and South Korea, the majority still relies heavily on U.S. consumption of the flagship heavy sour Maya crude.
A senior official within the Mexican government indicated that Pemex is engaging with potential buyers beyond the United States, noting, “There is appetite for Mexican crude in Europe, India, and Asia.” This creates an opportunity for Pemex to increase its market share in regions that have a demand for heavy crude oil.
Furthermore, initial discussions with Chinese buyers suggest a strong interest in procuring Mexican crude. The official remarked that “demand will determine how these flows are redirected,” emphasizing the vital role of market demand in shaping future sales strategies.
Potential Markets and Challenges
According to industry sources within Pemex’s trading arm, markets such as China, India, South Korea, and Japan could emerge as viable alternatives despite the potential for higher shipping costs. As one trader pointed out, “only Asia” is capable of absorbing the volumes that are not directed to the U.S., underscoring the refineries’ capability to process the specific grades of crude Mexican oil.
In light of the tariffs, traders have speculated on whether Pemex would resort to offering discounts to U.S. clients in a bid to maintain its customer base. However, the government source firmly dismissed this notion, stating that contracts with U.S. buyers are set to expire soon, and theshipments would likely shift towards Asian and European markets thereafter. Furthermore, it was noted that no discounts would be applied to enhance competitiveness in exports.
Long-Term Implications for Mexico’s Oil Industry
Mexico’s oil production landscape is currently facing significant challenges, with output from aging oil fields in the Gulf of Mexico reaching a four-decade low. The country’s domestic refining capabilities are also under significant strain, resulting in a paradox where Mexico exports crude oil while still needing to import gasoline and diesel, largely from the U.S.
Looking ahead, if Mexico does not ramp up its investment in exploration and production, there is a risk that it may be forced to import crude oil to meet the demands of its expanding refinery capacities over the next decade. Such a scenario would represent a stark reversal for a country that has long been an oil exporter.
Source
finance.yahoo.com