Oil Prices Stress Markets; PEMEX Refining Strategy Under Scrutiny

Global oil markets ended last week under pressure as crude prices continued to decline, refining margins eased, and elevated freight rates constrained long-haul arbitrage opportunities, as reported by Sparta Commodities.

West Texas Intermediate futures closed below US$60/b, extending a downward trend driven by weaker sentiment and uncertainty surrounding geopolitical negotiations, including possible developments in Ukraine. According to the report, market participants see continued pricing pressure unless tensions escalate significantly in Russia or Venezuela.

Commercial crude inventories in the United States have posted consistent builds in their four-week average, signaling length across the OECD. At the same time, US crude exports have begun to decline as arbitrage economics weaken and physical crude differentials soften quarter over quarter.

High freight rates remain a central constraint. Elevated dirty tanker costs have made long-haul barrels into Asia less economical, contributing to what Sparta describes as a ceiling in Brent prices after a modest rally earlier in the month.

Refining margins, while easing, remain above typical levels after a period of volatility fueled by speculation surrounding enforcement of US sanctions on Russian barrels. With market uncertainty receding, product cracks have begun to normalize, though the fuel oil segment continues to challenge refiners. Sparta notes that delivered West Africa fuel oil margins into Europe have turned negative, putting pressure on simple refining systems.

Diesel markets show little indication of returning to long-term average spreads and cracks, despite a recent drop in prices. The report points to persistently low inventories, closed arbitrage routes into Europe and strong demand for US barrels in Latin America. Asia is also drawing supply from the Middle East and India. Only a significant rise in Chinese export quotas or a substantial revival in Russian diesel exports would provide short-term relief, while long-term normalization would require a demand slowdown, Sparta notes.

Mexico’s Current Context

Mexico is navigating these developments while managing a complex domestic energy landscape characterized by high fuel import dependence, limited refining flexibility and declining oil output, while is being dependent on oil revenue.

In 3Q25 alone, the federal government transferred MX$380.6 billion (US$20.8 billion) to PEMEX, 179% above the amount originally authorized, largely through debt-buyback operations and capital injections. This massive fiscal support surpasses major public expenditures, such as those allocated to national education, demonstrating the scale of reliance on public funds to sustain the company.

Meanwhile, PEMEX’s crude production continues to decline, even as exports and refining activity rise, a dynamic driven by improved refinery utilization and use of strategic inventory buffers rather than increased output.

The dependence on oil revenue and public transfers leaves Mexico’s public finances and energy strategy vulnerable to fluctuations in global oil prices and demand. Structural reforms and private participation remain essential to reduce fiscal exposure, improve operational sustainability, and gradually decouple national budgets from oil-linked revenues.

Demand for fuel is recovering after pandemic-period declines. Gasoline sales have been rising steadily since 2022, although they remain below pre-2018 peaks. Diesel demand has strengthened as manufacturing, logistics and freight transport expand, driven in part by nearshoring activity.

On the regulatory side, the administration has emphasized energy sovereignty, prioritizing refinery rehabilitation, the full operation of Dos Bocas, and measures to curb illegal fuel imports. The government has also tightened control over import permits and private infrastructure, reinforcing the central role of CFE and PEMEX in fuel and power markets.