Refiners can supply Mexico's growing demand for gasoline without having to meet Renewable Fuel Standards
U.S. refiners are setting up for the strongest end-of-year they've ever had, and it's all thanks to Mexico.The Renewable Fuel Standards are a boondoggle for the agro-business that were created because of the perception of scarcity of fossil fuels. That is no longer the case but a boondoggle once in place is hard to get rid of. The decision to sell refined products where3 it is not necessary is rational. Mexico continues to be Texas's number one trading partner. Texas also leads the nation as the number one exporting state. In negotiations over changes to NAFTA, it would be wise to allow these sales to continue.
Nationwide gross oil refinery inputs will rise above 17 million barrels a day before the year ends, according to Energy Aspects, even amid a busy maintenance season and interruptions at plants in the U.S. Gulf of Mexico that were clobbered by Hurricane Harvey in the third quarter.
The chance to skip out on compliance with costly U.S. biofuels regulations by exporting fuel is a huge incentive for overseas sales. Under the Renewable Fuel Standard, refiners aren't required to buy blending credits called RINs for barrels that are exported. Mexico has potential to demand 600,000 barrels a day of gasoline imports as its own refineries limp.
America's southern neighbor has continued to be its best customer as its own fuel factories suffer from inefficiencies and breakdowns -- in September Mexico's crude processing fell to the lowest since December 1990, or about 33 percent of its total national operating capacity.
Bullish fundamentals have supported refiners throughout the year. The Bloomberg Intelligence North America refining index is up 73 percent over the past year.
Petroleos Mexicanos came knocking on the Gulf Coast's door for more supplies early this week. As full operations at its largest refinery, Salina Cruz, aren't expected until year-end, and its Cadereyta and Minatitlan plants are also in turnaround, at least seven ships capable of hauling 2.1 million barrels of fuel were provisionally booked to load gasoline and diesel through Nov. 16.
As of last week, total U.S. gasoline stockpiles were about 5 percent lower than the same time last year, and have fallen below the five-year seasonal average. But that's no reason for Gulf Coast refiners to hold back, according to Campbell.
"The U.S. is down 20 million barrels since Hurricane Harvey," he said, however those draws are showing up in the Midcontinent and East Coast regions. "The capacity is there to supply these markets."