U.S. Approves Crude Oil Export Swaps With Mexico

The United States has prohibited most domestic crude exports for the past forty years.  Producers including Exxon Mobil Corp. and ConocoPhillips have called for an end to the restrictions.   In August 2015, the Government agreed to allow some light oil to flow to Mexico in exchange for heavier Mexican crude.

The crude export ban has been in place since the 1970s and was designed to protect domestic energy supplies and reduce reliance on oil from the Middle East and other overseas countries. Nevertheless, some shipments to Canada are allowed under the law, and exports of refined products aren’t affected. One major exception under this law was granted by the United States government via a license giving broad approval to Mexico’s state-owned oil company, Petróleos Mexicanos (Pemex), to import as much as 75,000 barrels a day for the next year.

Mexico produces three grades of crude oil:  heavy, light and super-light.  The refineries in Mexico were built for light crude oil, which, as a percentage of Pemex’s total production, has been shrinking since the 1980s. The lighter grades are helpful for the nation’s refineries to produce cleaner fuels. The extra-heavy oil is part of the Government’s plan to swap petroleum blocks with the US.   

With the abundance of light shale oil in the United States, and the need for it in Mexico, it makes sense for them to do a swap. For Mexico, this means that it will be able to export most of its heavy crude oil, which requires heavy investment to refine, and import lighter crude from the United States, which requires less investment to process.   As a consequence, Mexico might be able to increase its profit margins in refining.  For the United States, this specifically means  that, as the country comes closer to becoming an energy exporter, its markets abroad expand as well preparing the ground for a future that may include U.S. exports in a way that has not been seen since the 1970s.

Taking all the above into consideration, one can bet that Mexico is eager to reinforce energy trade relations with its neighbors to the North.

 

Allyn International Services, Inc. (Allyn) is a privately-owned supply chain management, tax and customs consulting firm established in 1992. Services comprise of supply chain & logistics management, global trade compliance and US tax compliance. Allyn offers customized solutions to meet your global needs with offices in Fort Myers, Fla., Shanghai, PR China, and Prague, Czech Republic.