Mexico looks to suspend crude export cuts as prices rally

Mexico will most likely keep its crude oil exports at about 1 million barrels a day to take advantage of the recent price spike, temporarily delaying President Andres Manuel Lopez Obrador’s plan to halve them as part of his energy self-sufficiency goal, according to a person with direct knowledge of the situation.

The government is reviewing how to use the windfall from a rally in international oil prices to subsidize rising gasoline costs for Mexicans and will probably delay its pledge to drastically reduce shipments abroad, said the person, who asked not to be named because the plan isn’t public.

Lopez Obrador said in December that state-owned oil producer Pemex will significantly cut its shipments abroad in 2022 by more than half to 435,000 barrels per day so that the company could refine enough crude in Mexico to eventually eliminate fuel imports. Oil exports by Petroleos Mexicanos, as the company is formally known, were already trimmed to 832,000 barrels per day in January from an average 1.02 million during 2021.

Read More: Mexico’s AMLO Would Subsidize Fuel Prices With Crude ‘Surplus’

But the President earlier this month hinted at snags in his strategy - which would have ended all oil exports by next year - saying higher crude prices resulting from Russia’s invasion of Ukraine would be used to offset the cost of rising fuel imports for Mexicans. And Energy Secretary Rocio Nahle said in an interview with Bloomberg Linea last week that the government was reconsidering its plan to reduce oil exports after the recent oil spike.

The extra government revenue from oil would be enough to subsidize the higher cost of gasoline prices at Pemex pumps, according to the person. The price for Mexico’s crude oil, know as Maya, jumped almost 68% since early December to $99.06 per barrel on Friday.

Neither Pemex nor the presidency’s office immediately replied to requests for comment. At an event on Friday afternoon, Lopez Obrador reiterated his pledge to reach energy self sufficiency by next year.

Last year, Mexico’s Finance Ministry spent 104 billion pesos (about $5 billion) on gasoline and diesel subsidies, an amount which would more than triple this year if the subsidies are extended for the rest of 2022, according to a report from Mexico City-based risk consultancy EMPRA. At an average of $90 a barrel for the Mexican export mix this year, public finances could reach a surplus of 170 billion pesos, according to the firm. 

“However, if the Lopez Obrador administration continues to decrease its exports while heavily subsidizing gas prices, this surplus will quickly disappear,” EMPRA analysts wrote in a report Tuesday.

Lopez Obrador’s original plan to stop all crude exports was met with skepticism at the time, given Pemex’s poor operating and safety track record. The company’s refineries have been operating at a fraction of capacity for half a decade after years of underinvestment and lack of maintenance.