Pemex’s Trading Arm Declares Force Majeure on U.S. Gasoline Imports

Mexico, the largest recipient of U.S. gasoline exports, is seeking to cancel imports of the fuel from at least one U.S. company amid the rippling effects of the coronavirus on demand.

Petroleos Mexicanos’s trading unit, PMI, declared force majeure on imports of gasoline as an armada of vessels unable to discharge the fuel idles on the Atlantic and Pacific coasts, according to a person with knowledge of the situation who spoke on condition of anonymity because the information is confidential. The legal term “force majeure” typically describes an unexpected, external event that makes it impossible for a party to fulfill its obligations under a contract.

Fuel consumption at gas stations fell by as much as 50% as Mexicans follow the stay-at-home order from President Andres Manuel Lopez Obrador. The logjam is about 60 vessels waiting, said Erick Tapia, an independent Mexico oil consultant and former PMI employee. Each vessel carries on average 300,000 barrels, bringing the total on the water to about 18 million barrels.

“This will be a very complicated situation for them to unwind themselves from,” he said.

Pemex didn’t immediately return an email seeking comment.

Boutique Gasoline

PMI imports “boutique” gasoline that has specific limits on aromatics and benzene that make it difficult to sell outside of Mexico, a person familiar with the matter said. The bulk of it is of so-called Free On Board purchases, FOB, which means PMI is responsible for picking up the cargo at foreign ports with its own vessels.

The plunge in demand caught up with Pemex as the state oil company had its inventories full ahead of the Easter holidays, when travel picks up. Unable to discharge fuel into storage tanks, PMI has been racking up penalty fees for the late return of ships. The so-called demurrage fees are about $25,000 a day, which means PMI is paying $1.5 million daily in fees.

Last year PMI changed its business model following the landslide victory of Lopez Obrador. PMI which used to buy 40% of its fuel in the spot market, moved to a model where the majority of purchases are made in long-term contracts, Tapia says. That means that PMI had less wiggle-room to adjust to the slump in demand brought by the pandemic.

Mexico is home to Latin America’s largest refining complex after Brazil. After years of mismanagement and lack of maintenance, the oil-rich country now consumes more gasoline that’s produced overseas than domestically.

Source: bloomberg.com

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