High Oil Prices Hit Mexican Government Finances

The Dos Bocas refinery project in Tabasco. Photo: Google


The value of oil imports and the trade deficit in hydrocarbons reached an all-time high in the first five months of the year due to the global rise in crude oil prices, a situation that could complicate Mexico’s public finances, experts said on Tuesday, June 28.

From January to May of this year, the prices of light Texas crude oil and Mexican mixed crude oil increased 52.5 percent and 59.7 percent, respectively, which caused the value of oil purchases abroad to add up to $27.74 billion, the highest amount recorded for the period.

Although the value of Mexican oil exports also increased to $16.5 billion through May of this year, it was insufficient to compensate for the cost of petrochemical imports. The trade deficit of hydrocarbons reached $11.2 billion for the same period, a record high.

According to Ernesto O’Farrill, president of Grupo Bursamérica, while the Mexican government has earned more income due to the rise in export oil prices — which it is using to subsidize gasoline consumption in the country —  the other side of the equation is that it must also purchase fuel and gas from abroad at a higher price, which puts pressure on public finances.

In May alone, the Mexican government’s oil imports reached $6.9 billion, a year-on-year increase of 76 percent, a result of insufficient local crude oil production and, above all, the country’s internal demand, said Aníbal Gutiérrez, professor and researcher at the National Autonomous University of Mexico’s (UNAM) Department of Economics.

“There is an imbalance, in that the country is importing all the fuel and gas, and has not strengthened its production capacity,” Gutiérrez said.

“Mexico now has a greater dependence on foreign oil. The dollars that are being earned from exporting oil are not enough to cover the dollars that are being spent on importing oil, and the imbalance is deepening.”

What’s more, analysts predict that even if the Dos Bocas oil refinery currently being constructed in the southeastern Mexican state of Tabasco — which is slated to be inaugurated on Saturday, July 2 — is opened and fully operational, the country will still depend heavily on oil imports at least through 2023. Mexican President Andrés Manuel López Obrador (AMLO) announced on Wednesday, June 15, that the new refinery will operate at full capacity in 2023 and will produce between 20 and 25 percent of the gasoline consumed in the country.

As a concrete example to illustrate the country’s oil problem, energy-sector analyst Ramsés Pech pointed at several processing plants of state-owned Petróleos Mexicanos (Pemex) located in various cities in Mexico — Tula, Salina Cruz, Cadereyta, Madero, Minatitlán and Salamanca — and their current operating capacity.

“Pemex could close the year with an average utilization of 55 percent in those plants,” Pech said, “although it will depend on the volume of crude oil that Pemex delivers to it.”

This is a problem, Pech explained, because if the Mexican government decides to increase the export of crude oil to take advantage of the current oil prices in the market — in a bid to increase income and offset the increase in gasoline and diesel prices with fiscal stimuli — the oil available for refining will be severely limited.

Pech said he believes that it would be difficult for Mexico to substantially reduce its oil imports in the short term as López Obrador has proposed, a strategy to achieve sovereignty in oil products.

“Best-case scenario, this could be achieved at the end of 2023 or mid-2024,” Pech said.

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