January 22, 2019 | By Denton CinquegranaFollow @Cinco70Denton
Stealing fuel is nothing new in Mexico, but recently inaugurated President Andres Manuel Lopez Obrador (AMLO) has been aggressive in trying to slow down what has become rampant theft.
It is too early to tell if (and/or when) the AMLO strategy will have the intended effect, but one unintended consequence has been severe spot supply shortages throughout the country.
Meanwhile, new anti-theft measures have coincided with fire incidents.
While the government has blamed the fires on fuel thefts, the actual cause of the fires remains unclear. One fire incident occurred on Friday in Tlahuelilpan, Hidalgo, which has a death toll of 85. The second fire incident, which occurred early Saturday in Paso de Mata, Queretaro, did not result in any casualty.
Fuel distribution logistics have been snarled in a way not much different from the supply disruptions that can follow a natural disaster. Several pipelines have been shut following discovery of changes in pressure (which can signify unauthorized taps), including a line from Pemex’s Salamanca refinery.
As a result, fuel shortages and long lines at service stations (likely aided by some panic buying) have emerged. With start-and-stop pipeline service slowing the system, Pemex has resorted to delivering fuel to terminals via truck. Truck delivery is slow, inefficient and expensive when compared to a pipeline.
The Mexican economy is also expected to take a big hit. Citibanamex estimated that the strategy will incur a loss in Mexico GDP that tops $1 billion.
Mexico City, one of the most populated cities in the world, has not seen any price gouging, local reports indicated, but it is one of the regions most impacted by the supply shortages. Station outages are common there, although sources speculate that demand is off by some 50%.
“I have never seen so little traffic in Mexico City,” a source told OPIS.
There is also a backlog of ships waiting to discharge fuel. Pemex is on the hook for paying demurrage fees and sources speculate that costs could top $1 million per day. However, “it’s still cheaper than losing 30% of your production to theft,” the source added.
The latest EIA data show that Mexico imported just over 19 million bbl of gasoline from the U.S. in October, the highest since December 2017. While official data is still a few months away, shipping data company Navarik sees January exports to Mexico dropping sharply. During the first half of January, just over 5 million bbl were fixed for export to Mexico from U.S ports.
There is no telling how long the supply issues will last in Mexico and that could put pressure on already bloated U.S. inventories, particularly on the Gulf Coast. PADD 3 gasoline inventories are above 90 million bbl and at an all-time high. While there may be a variety of reasons for the builds in supply (poor winter demand, strong refinery output), there is a chance that the situation in Mexico is playing a role in quickly building gasoline inventories.
Copyright, Oil Price Information Service