The price of the Mexican export blend continued its bullish streak this Tuesday, recording three-months highs and an accumulated increase of 60 percent since the start of 2022. WTI crude also climbed to its highest price in 13 weeks on the New York Stock Exchange, propelled by projections of an even tighter global supply.
Industry experts foresee a further decline in stockpiles as US inventories continue to fall this week. Likewise, the prospect of increased demand from China is placing greater strain on supply chains. Such scenarios would see an even greater spike in prices throughout summer and into the autumn months. Likewise, market experts have questioned the effectiveness of the new OPEC+ strategy to stabilize global supply. OPEC+ pledged to add 648MMb/d to its production in July, a figure that exceeds the 432MMb/d average of previous months.
In this global context, the price of the Mexican export blend gained US$0.84, or 0.74 percent, closing May at US$113.59/b. This represents a gain of 60 percent compared to the price of US$71.29 recorded at the close of 2021. On March 8, the price of the Mexican blend peaked at US$119.62/b, its highest price since July 2008, as the commodities market reacted erratically to the initial fallout from sanctions placed on Russian fuel following the country’s invasion of Ukraine. Meanwhile in New York, WTI crude rose 0.8% percent to close at US$119.41 a barrel, its highest price since March 8.
As the country’s biggest company, the strength of the Mexican peso has long been tied to the success of PEMEX. May also saw the peso rise US$0.16 against a weakened dollar. While the recent price hikes represent a major boon for the debt-laden NOC, this stellar performance is not unique to PEMEX's strategy. As Rystad Energy noted in a report released in May 2022, the financial health of upstream operations is at an all-time high, as a result of what Espen Erlingsen, Head of Upstream Research, describes as a “perfect storm” of factors is driving up earnings and cash flow, putting E&P companies on track to break previous record profits this year as rising demand drives prices higher. Already in 1Q22, supermajors announced unprecedented earnings, with Shell and Exxon tripling their profits from the same period in 2021, as both IOCs raked in around US$9 billion each. Similarly, Chevron raked in US$6.5 billion, while BP upped its profits to US$6.2 billion, its most lucrative first quarter performance in a decade.
JPMorgan predicted back in April that the price of Brent crude could continue rising to US$185/b in the event of a severe global oil shortage. Likewise, Rystad estimated that Brent could reach as much as US$240 this summer if the conflict in Ukraine is prolonged. Meanwhile, Russian President Vladimir Putin warned that continued sanctions on his country’s exports would wreak havoc on international markets and see the price of Brent top the US$300 mark.