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Latin American crude exports to USGC see small gains amid coronavirus upheaval

Latin American countries, excluding Venezuela and Argentina, have slightly increased crude exports to the US Gulf Coast market in 2020 to date, despite fierce competition from Canadian and Middle East producers.

In the first five months of 2020, Mexico, Colombia, Ecuador, Brazil and Guyana exported a total of 148 million barrels of crude to refineries located in the US Gulf Coast, US Customs Bureau and S&P Global Platts Analytics data showed. That was up 1.3% from 146 million barrels recorded in the same period of 2019.

Ecuadorean heavy sour Napo saw the steepest volume increase of cargoes delivered with 6 million barrels between January and May of 2020 compared to 2.4 million barrels in the same period of 2019.

But Mexico continued as the top Latin American crude exporter to the USGC with 72 million barrels in the same period of reference, which was flat year-over-year.

Low utilization rates at Pemex's refining system translated into additional barrels of medium sour Isthmus crude available for the export market.

US waterborne oil imports

Go deeper: Explore crude grades with S&P Global Platts Periodic Table of Oil

An average of 2 million barrels of Isthmus, on a monthly basis, has been delivered to the USGC so far this year, with Valero as one of the main consumers. In April, even when Pemex increased its run rates at some refineries, 50% of the total exports of Isthmus arrived at ports along the USGC.

In pricing, Napo was the cheapest of the heavy grades traded in the USGC with an average outright price of $30.24/b in the first five months of this year, compared to $32/b for Maya, $34.10/b for Canada’s Western Canadian Select (WCS) and $39.24/b for Iraq’s Basrah Heavy, according to Platts data.

Oil imports from Canada drop

The collapse of the WTI NYMEX May futures contract price on April 20 had a major impact on Mexican and Ecuadorean crude values which use the US benchmark to price its oil barrels.

After the US Treasury Department imposed sanctions on Iran crude exports late 2018, and on Venezuela’s state-run oil producer PDVSA in January 28, 2019, US refiners opted to take more heavy grades from Mexico, Colombia and Ecuador.

But in 2020, downward pressure was felt by those three producers due to the impact of the International Maritime Organization (IMO) 2020 sulfur cap regulation. The IMO has lowered the amount of sulfur that ships can emit as they burn bunker fuel on the high seas to 0.5% from 3.5%, effective from January 1. Heavy sour crudes yield more bunker fuel than sweeter grades and were less in demand.

Before the coronavirus pandemic, Latin American heavy sour producers were also facing poor demand in the USGC market due to an oversupply and lower prices of Canadian crude.

But more recently, US weekly imports of Canadian crude have plunged. Imports from US refiners fell to below 3 million b/d for the first time since December 2017 in the week ending May 8, reaching 2.897 million b/d, according to the US Energy Information Administration. A combination of lack of demand and Canada’s production curtailments of more than 1 million b/d contributed to the imports decline.

Before the pandemic, Canada’s heavy Western Canadian Select often had the highest coking margin on the US Gulf Coast, according to Platts Analytics data. Since then, the margin has plunged more than that of waterborne competitors from Latin America.

The coking margin for WCS at Nederland, Texas, dropped to $1.48/b June 3 from an average $9.47/b in March. During the same period, the coking margin for Mexico’s Maya edged down also to $1.48/b from $10.25/b, while Castilla Blend’s coking margin fell to $2.88/b June 3, from $6.65/b in March.

Liza crude, more exports to USGC

In the sweet crude segment, Guyana’s medium-sweet Liza grade made its debut in the US Gulf Coast, after ExxonMobil imported the first cargo (525,730 barrels) into the Port of Houston on February 3, US Customs Bureau data showed. Since then seven cargoes totaling over 3 million barrels have been delivered to Texas-based oil refiners.

Separately, although Brazil is one of the largest producers in Latin American by volume, its exports are more focused on China than the US. From January to May, US refiners imported nearly 7 million barrels of Brazilian crude, 4 million barrels lower than the 11 million barrels recorded in the same period of last year.