Biggest Foreign Buyers of U.S. Fuel About to Step on the Pedal

Source: By Lucia Kassai and Jeffrey Bair, Bloomberg • Posted: Tuesday, June 15, 2021

Brazil and Mexico are beginning to emerge from the pandemic and that’s boosting demand for road fuel in economies that buy more U.S. gasoline and diesel than any other foreign nation.

Even with both countries still struggling with high Covid-19 infection rates, government leaders are taking steps to reopen and that is driving more economic activity. Road use in Brazil has been climbing with restaurants and gyms in the country’s most populous state allowed to operate during extended hours from July 1. In Mexico, students in the capital returning to in-personclasses this month and soccer stadiums and movie theaters are open at half capacity.

“We are definitely on a path to recovery in the region,” said Suzanne Danforth, an analyst with Wood Mackenzie Ltd. “It’s an uneven recovery between Mexico and Brazil, but still both are progressing.”

While oil demand has recovered quickly in the U.S., China and Europe, Latin America was among the hardest hit regions by the pandemic. Brazil and Mexico, the two largest economies in the region, together comprise about seven out 10 barrels of U.S. gasoline exports, making them critical to the global oil market recovery.

Demand for motor fuel in Brazil, a category that includes gasoline and ethanol, should return to pre-pandemic levels in the last quarter of this year, Danforth said. Brazil’s need for U.S. fuel imports has also climbed after oil refineries there cut fuel-making for maintenance.

Mexico, which has the slowest vaccination campaign in North America, should see demand recover at a slower pace until reaching pre-virus levels in the last quarter of 2022, she said.

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Mexico depends on imports for half of its gasoline needs, most of it produced by U.S. Gulf Coast refiners. Demand will continue to be ahead of the country’s ability to produce fuels, said Adrian Duhalt, a doctoral fellow in energy studies at Rice University’s Baker Institute.

Flow of gasoline, diesel and jet fuel from the Gulf Coast to Mexico in May was at its highest this year. Typically one to three fuel cargoes leave the U.S. refining hub for Mexico ports each day, shipping data compiled by Bloomberg show.

“Mexico certainly wants to get ahead in producing more gasoline, and reducing imports, but that is difficult to achieve,” Duhalt said in a phone interview from Houston. “You need intense capital spending.”