Nowhere to Go: Lack of Storage Strands Tankers Offshore

The scarcity of oil storage which gave rise to negative pricing on Monday is being seen in Mexico with up to 15 oil-laden tankers still stranded off the country’s coasts on Wednesday morning.

An article published by Milenio on Tuesday and updated by Excelsior on Wednesday morning explained that at least 15 ships were unable to enter PEMEX’s terminal port at Huasteco, Veracruz to unload their cargo. The vessels were bringing a variety of hydrocarbon products, though over half the entire load was diesel for Premium and regular gasoline destined for the Valley of Mexico market, reported Milenio.

The situation has been generated by the COVID-19 pandemic and price collapse, which saw Mexico’s crude oil basket fall to -US$2.37 per barrel on Monday.

As Mexicans have been told to stay at home and all non-essential businesses have closed to flatten the curve of the COVID-19 spread, the demand for fuel has evaporated. The country’s metro systems, public buses and peseros have emptied, while car traffic on roads has dropped as much as 70 percent in Mexico City, reported Excelsior.

ONEXPO, the representative association of Mexico’s gas retailers, reports that between April 10 and 18, sales of gasoline dropped by 70 percent in comparison to the same period last year, an increase from the 40 percent drop in sales reported at the start of March.

Mexico is now in Phase 3 of the virus, meaning transmissions will hit their highest peak and deaths will follow accordingly. As a result, gasoline retailers are likely to struggle further. ONEXPO reports that gas stations are predominantly managed by small companies and directly provide 250,000 nationwide and, due to the massive job loss without support from the government, the association has now petitioned authorities for help.

With only 30 percent of the usual gasoline being sold, storage is rapidly running out in Mexico. PEMEX Director Octavio Romero told journalists that the companies storage capacity was some 11MMb of crude and that, one week ago today, 5.5MMb capacity was full.

However, negative pricing has pushed the government to act. Despite refusing to cut 400Mb/d of production during the OPEC+ conference, yesterday President Andrés Manuel López Obrador said in a press conference that PEMEX would be shutting-in its new wells because, in comparison to wells in fields like the historic but now mature Cantarell complex, they could be closed “without losing their pressure.”

Though PEMEX’s production was to be reduced by 100Mb/d in May and June in accordance with the OPEC+ agreement, the company has recently faltered in its attempt to have four months of continuous growth in production. The production drop-off and the shut-in on new wells is likely to help Mexico’s storage situation, but with a parallel increase in refining and no expected increase in gas sales in the short-term, we may see more tankers stranded off the Veracruz coast in the coming weeks.