Earlier this month, the US Commerce Department indicated it will allow a number of applications to exchange US crude in exchange for imported Mexican oil – the latest incremental step in easing restrictions on exporting crude from the States.

Exports of US crude oil have been largely banned since the 1970s, with certain exceptions being made to countries such as Canada. But while this decision could mark the beginning of harmonising US policy with the North American Free Trade Agreement by extending export policy relief to other partner countries, supporters face an uphill battle.

From Mexico's perspective, production of light and medium barrels is in decline, while refinery demand remains constant. In a few years, demand will likely exceed supply, leaving Mexico searching for lighter barrels to fill refineries.



























Using our refinery modelling software, we have determined the optimised crude slate for Salina Cruz - the simplest Mexican refinery. While the swap is a small first step toward ideal, our analysis shows that switching medium-grade Isthmus for the lighter Eagle Ford has the potential to significantly improve margins.



























In addition to the added value that the US crudes will bring to its refineries, Mexico has a strong incentive to shore up their gasoline balance, which is currently short by 300 thousand barrels per day (kbd) and forecast to increase to 400 kbd by 2020 as domestic oil production begins to trail off.

The complexity – a measure of a refinery's upgrading capacity – of the average Mexican refinery is 6.6 versus over 10 for US refiners, resulting in gasoline yields around 25% lower in Mexico than US counterparts.

Mexican refiners produce much greater quantities of lower value fuel oil and lightening the crude slate enables the simple Mexican refineries to place more barrels in higher value products like gasoline.
Source: Wood Mackenzie