NEW YORK – Mexican crude oil is sailing to the U.S. East Coast at the highest rate in over a decade, according to customs data reviewed by Reuters, in a sign deepening discounts help crack open new markets as domestic shale inundates Texas.
Delta Air Lines-owned Monroe Energy received nearly 500,000 barrels of light-sour Mexican crude in September and a similar cargo in October at its 185,000-barrel-per-day refinery in Trainer, Pennsylvania, according to U.S. Energy Information Administration data. It was the refiner’s first imports from Mexico since 2009, the furthest the data go back.
Monroe has received two more shipments of Olmeca crude from Pajaritos, Mexico since then, totaling some 1 million barrels, according to customs data reviewed by Reuters and available via ThomsonReuters Eikon’s Crude Oil Flows system.
The recurring deliveries, the most recent on Dec. 11, suggest a new term contract with Monroe, industry sources say.
Together with separate sales of heavy and medium crude to two plants run by PBF Energy Inc, shipments of Mexican crude to the East Coast hit 38,200 barrels per day, the highest since 2004, according to the EIA figures. That represents about 3.4 percent of Mexico’s total crude exports.
The new flows, which have not been previously reported, are the latest evidence of how the U.S. shale boom is changing global oil trading patterns and forcing foreign suppliers once dependent on the U.S. Gulf Coast market to seek out new customers – often by offering hefty discounts.
This is especially true for Mexico’s relatively higher-value Olmeca crude. Though more ‘sour’ or high in sulfur, Olmeca competes with light, sweet U.S. shale oil and has been pushed out of the Gulf Coast by similar grades of domestic crude.
“This is the cascade to the bottom. There’s a lot of crude, and not enough demand,” said Sarah Emerson, president of Energy Security Analysis. “With Gulf Coast refineries backing out of Olmeca, Mexico needs to find new buyers.”
She added that Brent crude, the global benchmark used by Mexico, has been competitive with WTI, the U.S. benchmark.
While Mexico’s heavier Mayan crude has retained most of its U.S. Gulf Coast customers, the state oil firm Pemex has been forced to look for new buyers of Olmeca.
The sales also mark the arrival of a new competitor in the East Coast market, now dominated by domestic producers.
Finally, the sales also represent a change of strategy at Monroe Energy, which has built up its trading desk and taken control over more of its crude oil sourcing this year.
This summer it hired Hugo Zagaria, a veteran trader with deep ties to Latin American producers, a move industry sources say likely explains the deal with Mexico.
Pemex officials did not return requests for comments. Monroe Energy spokesman Adam Gattuso said the company “always pursues high-quality, competitively crude,” but declined to say whether the purchases were part of an ongoing contract.
The arrival of Mexican crude on East Coast shores is not unusual as such, but aspects of the Monroe deal are.
For instance, The refinery has bought high-sulfur oil similar to Olmeca only occasionally over the past four years, according to EIA data. Officials familiar with the refinery say such crude must be blended before it is processed because the refinery is not equipped to handle high-sulfur grades.
And while PBF Energy has been receiving regular shipments of Mexican crude at its New Jersey and Delaware plants, it was only buying medium or heavy density grades that compete with Venezuelan or Saudi oil rather than with light U.S. shale oil.
Like other Philadelphia-area refineries, Monroe relies largely on Bakken shale oil, which must be trekked nearly 2,000 miles by rail from North Dakota at a cost of some $14 per barrel, or ships similar crude from Texas aboard special U.S.-flagged tankers for approximately $6 per barrel.
However, congested rail lines have caused delivery delays and production cuts at Monroe, forcing refiners to continue buying some oil from overseas producers such as Nigeria and Norway, data show.
Now Mexico is making inroads, offering both cheaper transport – shipping from Mexico to the East Coast on a foreign-flagged tanker costs just around $2 per barrel – and deep discounts.
In January, its Olmeca crude [OSP/O] will be sold in Europe at a $4.05 below Atlantic basin benchmark Brent, the biggest discount this year. It is unclear what terms were agreed with Monroe.
“Mexico is in a position where it needs to find new customers, and if it needs to discount its crude to compete with U.S. domestic crude in order to build new relationships, it will do it ,” said John Auers, executive vice president at Dallas-based Turner Mason & Co. an energy consulting firm.
Olmeca represents less than a tenth of Mexico’s sales, but it has been the hardest hit by soaring U.S. crude oil production, with mainstay customers turning elsewhere.
For example, in February 2012 two large ExxonMobil refineries in Texas – Baytown and Beaumont – were buying more than 200,000 bpd of light Mexican crude, accounting for the lion’s share of U.S. imports, EIA data show.
In the first nine months of this year, the two plants have imported only 8,000 barrels a day, according to federal data.
(Additional reporting by David Alire Garcia in Mexico City, editing by Jonathan Leff and Tomasz Janowski)
This article was written by Jarrett Renshaw from Reuters and was legally licensed through the NewsCred publisher network.