CDMX / ZMVM

Mexico’s Pemex Suspends Fuel Imports From U.S. As Demand Tanks

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Mexico’s Pemex declared force majeure on fuel imports, which it receives from the United States, because of tanking demand, Reuters reported, citing two unnamed sources.

Bloomberg quoted another unnamed source that said there were several tankers carrying fuel from the U.S. and waiting to unload in Mexico. They were, however, unable to do so.

According to a former employee with Pemex’s trading arm, PMI, 60 tankers are waiting off the Pacific and Atlantic coasts of Mexico, each carrying an average of 300,000 barrels of gasoline, for a total of 18 million barrels.

Demand for fuel in Mexico, however, has slumped. As a result, Pemex has opted for a force majeure declaration to avoid having to pay penalties linked to other alternatives such as suspending supply contracts or spot market purchases, the Reuters source said.

What makes the situation complicated for PMI is the fact that since last year, the company has been buying more fuel under long-term contracts rather than on the spot market, which makes it liable for more contract suspension penalties.

Bloomberg reports fuel purchases at gas stations has fallen by 50 percent amid the national lockdown that President Andres Manuel Lopez Obrador ordered. The idling of those 60 tankers was one part of the fallout of this order on the oil industry. Because of the idling, PMI has been paying the abovementioned penalties for more than a week now. The daily average of these penalties—called demurrage fees—comes in at $1.5 million, or about $25,000 per tanker, Bloomberg notes.

The problem is not confined to the Mexican side; the fuel that U.S. refiners sell to Mexico is a special blend as per the buyer’s requirements. This means that finding an alternative market for the fuel would be a difficult task.

By Irina Slav for Oilprice.com

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