Running Out Of Gas (and Diesel)

18 Jan 2019; 

The new Mexican president Andres Manuel Lopez Obrador (AMLO) was inaugurated on December 1st 2018.  He vowed to make “profound and radical” changes in Mexico with a particular focus to end corruption.  AMLO did just that earlier this month when he cracked down on rampant fuel theft in the country by closing off pipelines which are subject to illegal taps.  While this may have reduced the fuel theft, it also created widespread fuel shortages and long lines at gas stations as well as congestion at some of the main import terminals in Mexico.  Since Mexico imports significantly more fuel than it produces, any hiccups in the flow of refined products immediately has an impact on the Caribbean product tanker market.  The vast majority of all the refined product imports into Mexico come from the United States and since there are no cross-border product pipelines between the U.S. and Mexico, most of these volumes are transported in product tankers (mostly MRs).  While there are some discharge delays in Mexico, the situation is not (yet) significantly worse than normal as Mexican ports frequently face interruptions because of saturated storage capacity as well as weather delays.  Since the crackdown started in early January, rates have softened.   It is unclear whether this reflects the impact of the fuel theft crackdown or a seasonal pattern that happens every year (as reflected in chart 1).  The expectation is that the freight market will normalize when the regular product flows resume or as soon as the national oil company, PEMEX figures out alternative ways to distribute fuels around the affected pipelines. 

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