PEMEX Performs Balancing Act with Gasoline

The international trading arm of PEMEX, PMI, is performing a balancing act with gasoline. On Friday, Bloomberg reported that the company once again declared a force majeure on incoming fuel imports in an attempt to further unwanted fuel arriving to its already brimming storage terminals.

This is the second force majeure that PMI has declared during the COVID-19 crisis and pushes the cargoes that should be arriving now back until the second half of the year, says Bloomberg. The first force majeure came on April 22 and was accompanied by PEMEX hiring at least 70 vessels at a cost of around US$30,000 per day each to help with fuel overflow, Forbes reported.

With Mexico still in the middle of Phase 3, the doors to schools and formal work sites, including offices and factories remain closed. This has caused an over 40 percent drop in road traffic, says Rystad Energy, and generated a fall in gas stations that, according to national association for fuel retailers, ONEXPO, has seen retailers sell 70 percent less during the first weeks of April than the same time the year previous.

The peak of Phase 3 was recently moved by Deputy Minister of Health Hugo López-Gatell to May 20, suggesting that the current restriction on movement of peoples and goods could go on and the low traffic count continue. Without movement, PEMEX may find it hard to drain the overflow from its storage and sales of retailers are unlikely to rise.

But the tide may be about to change, and with it, PEMEX’s fuel imbalance.

Mexican President Andrés Manuel López Obrador is hoping to reopen the economy soon, despite Mexico experiencing the most dangerous phase of pandemic. At the mañanera today, the president, who at the end of April claimed Mexico had “crushed” the curve of infections, said that a plan to reopen the economy would be made public this week. “We are going to present a reopening plan (this week) […] And if we have problems, we’ll go back and rectify them but we already have conditions to do that,” said the president.

The doors to businesses and schools opening would unleash a tidal wave of traffic on the nation’s roads and cause fuel demand to spike. Mexico City’s roads, which are currently 40 percent less populated than usual, are usually oversaturated. From 2000 to 2018, the capital’s car numbers doubled to 5 million, says Millenio. Warnings for children to be kept indoors and for people not to exercise outside are a frequent feature of life in the Valley of Mexico region, so heavy is the air pollution.

Despite the health implications of so many vehicles on the roads, the popularity of cars could increase post-COVID-19 as Mexicans try to keep safe from infection while travelling to work. The paucity of infrastructure and the long distances commuters travel in Mexico City mean that bicycles are an unlikely option as they are becoming in other parts of the world.

Mexico City’s Metro, which carried 4.6 million people every day, is unlikely to be as popular a choice for those commuters who can avoid it. Cities like London are forecasting a 40 percent drop in public transport when people return to work. Despite the very different socio-economic factors that the population of Mexico City presents, those who are able to drive to work most likely will.

PEMEX’s force majeure and its delay of imports until 2H20 fits into experts’ predictions for increased demand in the second half of the year. Rystad Energy predicts that global demand will return above 100MMb/d in December 2020 assuming a lifting of lockdown measures, which should be accompanied by rising oil prices. The opening of Mexico’s economy will push PEMEX’s sales back up to the 720Mb/d mark seen in 2019 and help drain the storage terminals at ports and metropolitan areas around the country.