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Feature: US seen losing market in Mexico amid Asian gasoline glut

Houston — Mexico's June gasoline imports from the US likely dropped year on year, while the country's imports from Asian countries reached new highs, according to preliminary data from Mexico's Energy Secretariat, a trend supported by a glut of gasoline across the Pacific in Asia.

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The latest data from SENER showed that Mexico was expected to have imported 1.342 million barrels of gasoline from China in June, up from 896,000 barrels in June 2018. If these expectations turn out true, this will be the highest amount of gasoline China has ever sent to Mexico in June, according to the available data.

Mexico's imports from South Korea are poised to follow a similar pattern, with imports at 896,000 barrels of gasoline, compared with a mere 65,000 barrels in June 2018.

New data from state oil company Pemex, to be released later in August, will show how much gasoline Mexico imported from Asia in June.

SENER expects US gasoline exports to Mexico to hit 10.442 million barrels in June, compared with 12.385 million barrels in June 2018

The SENER data seems to gel with data from S&P Global Platts' ship-tracking software cFlow, which showed clean tanker traffic from the Korean peninsula into West Coast of Mexico for June at 1.32 million barrels of refined products, compared with 149,628 barrels last June, a more than sevenfold increase.

While the US appeared to be on track to lose some market share in Mexico, it remains by far the most dominant source of foreign supply, accounting for about 71% of imports in June, compared with about 7.6% for China in SENER's expectations for the month.

Compared to private players in Mexico's fuel market, Pemex is expected to have imported less gasoline on the year. SENER expects Pemex to have accounted for 89% of gasoline imports in June this year, compared with 97% in June last year. It also expects Pemex to be the only importer of Chinese or South Korean gasoline into Mexico, encouraged by the supply glut in China.

CHINESE FUEL GLUT

In Asia, a supply overhang of gasoline has put downward pressure on prices and has made arbitrage routes into Latin America more appealing.

"Gasoline price have been lower than gasoil, suggesting gasoline is very weak in the domestic market," a source with Chinese refining behemoth Sinopec said in June.

In August, Daria Campbell, a refined products analyst at Kpler, told Platts that she agreed the Chinese gasoline market was oversupplied. "China's refined product glut is forcing the country to look beyond its traditional export regions to find new homes for its gasoline."

Compared to both 2018 and 2017, China's gasoline exports to Mexico in June 2019 were above historic norms, according to Kpler data, she said, adding "year over year, there is definitely a trend here."

In this context, Singapore -- Asia's single largest oil trading hub -- saw stocks of light distillates, which includes gasoline and gasoline blend stocks but not LPG, hit a seven-week high of 12.49 million barrels in the week ended June 19, data released from Enterprise Singapore showed.

With stocks of gasoline in Asia, and China in particular, up on the year, China's government increased permissible volumes of gasoline exports for June and the rest of 2019. In mid-May, Beijing allocated 9.1 million mt of fresh export quota for gasoline, raising the year-to-date quota for the fuel by 11.6% year on the year to a total of 13.535 million mt.

At the time, sources in Asia said they expected this move would lead to an increase in exports of Chinese fuel. Data from China's General Administration of Customs showed that in June, after the quota was adjusted, China's gasoline exports reached about 1 million mt, an 18% increase from May.

ASIAN GASOLINE OUTLOOK BEHOOVES MEXICO

Looking ahead to the rest of 2019, there is a rather bearish Q3 gasoline outlook in Asia, which may prove beneficial to Mexico's import-dependent market.

According to Platts shipping data, Mexico continues to show buying interest for China's refined products. For instance, the Hellas Revenger, a 49,975 dwt ship, has been put on subjects by PMI -- the trading arm of Pemex-- to carry refined product from Quanzhou, China, into the West Coast of Mexico later in August.

While it is unclear if this ship will be carrying gasoline on this route, cFlow showed that the vessel loaded gasoline the last time it stopped in Quanzhou on June 3 before discharging the haul at Lazaro Cardenas, Mexico's West Coast, on July 14.

The latest Platts data on Asian refinery work showed that while some regional refineries have planned maintenance in Q3, the loss of refined product from this repair work will probably be offset from the return of other refineries to normal capacity, including two PetroChina refineries -- one in Liaoyang and one in Jinzhou with a combined capacity of 330,000 b/d -- that have already completed turnaround repairs from earlier in the year.

Looking at the demand side of the Asian market, few expect to see Asian gasoline consumption ramp up much in Q3. Platts earlier reported that state-owned enterprise Pertamina of Indonesia plans to import 8-9 million barrels of gasoline in July, a steep drop from the 11 million barrels imported in June and the lowest in 2019.

Though the US remains the supplier of choice for Mexico's market, US refiners and exporters would do well to closely follow Asia's growing ability to supply road fuels to America's southern neighbor and number one buyer of gasoline.

China's oil processing capacity is set to grow sharply in the coming years as new refineries like Sinopec's new 320,000 b/d in the coastal city of Lianyungang come online. This could portend increasingly fierce competition in Mexico's retail fuel market.

--Seth Clare, seth.clare@spglobal.com

--Sarah Hernandez, sarah.hernandez@spglobal.com

--Edited by Pankti Mehta, pankti.mehta1@spglobal.com