By CAPosts 31 July, 2020 - 08:54pm 32 views
New York. PMI International Trade, the marketing arm of Petróleos Mexicanos (Pemex) is modifying its fuel purchasing practices, five sources close to the issue said, including exchanging crude for gasoline and other refined products to reduce cash outlays.
The changes are part of the government's latest strategy by President Andrés Manuel López Obrador to protect the state-owned company's finances and preserve its available credit after losing $26 billion in the first half of the year.
Pemex and its PMI International Trade trading arm are the largest importers of gasoline in Latin America.
Several of its largest business partners, including Exxon Mobil and US refiners Valero and Marathon Petroleum, have advanced in talks for new agreements with PMI, according to a source.
Exxon and Marathon declined to comment. Valero and Pemex did not respond to requests to comment on what the sources said.
Instead of buying through one-off contracts, the payment of about 20 percent of Pemex and PMI fuel imports could be covered with deliveries of Mexican Maya crude. The outstanding balances between the parties would be settled at the end of each month, replacing the individual payment of shipments, the sources said.
In the year and a half since López Obrador took office, Pemex increased its reliance on one-off fuel purchases with the expectation that the country could increase its refining production and rely less on the foreigner, sources with direct knowledge said.
In the first half of 2020, Pemex imported 607 thousand barrels per day (bpd) of gasoline and other fuels and exported 1.14 million bpd of crude oil, according to its data. Only a fraction of these imports are expected to be replaced by exchange contracts, sources said.
Pemex's financial debt rose to $107.2 billion at the end of the second quarter, among the highest of any oil tanker. Last year, the state changed the formula of its flagship export crudes, in an effort to reduce the rising costs associated with the Ministry of Finance's annual hedging program.
As its financial debt has risen, the company has lost some of the open credit agreements it had, according to two of the sources. Crude oil exchange contracts aim to increase cash flow and preserve available credit, giving Pemex more financial flexibility, one of the sources said.
"Business partners know that Mexico will pay, but these new contracts will make billing and payments easier," the source said.
Not all PMI purchases will be converted into forward contracts and import mechanisms from Europe and Asia are not expected to change. For PMI, leaving some exposure to occasional purchases could ensure access to cheap fuel if prices fall.
Many of the proposed exchange agreements would cover short deadlines. A source of one of the foreign companies in talks with PMI said his firm was offered an agreement covering three months of fuel supply.
When oil prices collapsed in the second quarter of the year and global fuel demand fell apart due to the coronavirus pandemic, Mexico was able to cancel and postpone many of the scheduled deliveries. But swap agreements would make this more difficult, as these contracts generally specify delivery volumes.
In forward contracts, PMI would have to declare "force majeure" under circumstances beyond its control. That could open up the possibility of legal disputes and cause logistical headaches for Mexico, which often faces problems due to its insufficient storage capacity.