Mexican and Canadian Oil Flows as a Function of Commodity Price Benchmarking and Structured Commodity Finance

Mexican and Canadian Flows as a function of Commodity Price Benchmarking

“Something’s going to have to give,” said Ed Morse, Citibank’s head of global commodities research in New York.

“U.S. refineries built out their capacity to run heavy barrels,” Auers said. “Refineries in the rest of world aren’t built to run heavy barrels.”- John Auers

“The lack of alternative markets for heavy crude means Latin American countries will battle to maintain their share in the U.S.”- Stephen Schork


Crude Assay

WCS maya api

Mexican and Canadian are both oil-producing countries members of the NAFTA.

Amist the U.S oil supply glut, competing flows are a function of commodity price benchmarking and structuring. In order to gain market shares, Pemex doesn’t have to discount its crude slates.

Although Maya and WCS (Western-Canadian Select blend) are competing crude, the vast majority of Pemex’s ouput (maya, isthmus, olmeca) are priced under netback contracts while WCS is more available on spot pricing.

net back pricing [1.1]


Costs= (refining, marine transportation)

GRPW=Gross Refined Products Worth in the USG (e.g Heating oil, Jet Fuel, and Gasoline.)
Net back margin ≤  cracking spread

blue line

Crack-margins and formula pricing elements are driving these Maya month-to-month imports fluctuations in the U.S.

When Crack-spread is low.

Considering how low is the Crack spread in PADDIII ( below $2.89/bbl last time I’ve checked the 3-2-1 LLS) and that current Maya slates were priced months ago under net-back contracts when crack margins were between [10-15], U.S Refiners will let their netback contracts expired and not renew so WCS will gain market shares.

When the Crack-spread is relatively high.

When Crack-Margins will return high, to me it’s more WCS that will have to give-up pricing in order to gain market % at the expense of Maya.


For the buy-side : the biggest advantage with Maya is that they can lock a net back margin ($/bbl) for many months, reduce volatility of the EBITDA and provide bankers a solid number for financing.

For the sell-side: they can secure market shares (%) in the U.S refining market despite an oil supply glut.

Their residual exposure is GRPW in [1.1].

This price exposure can be hedged by simply selling products contracts.

blue line

Crucial Commodity price Benchmarking & Structuring elements behind these flows. 

People familiar with the trade say that for Pemex, it’s the way to build the relationships and market shares (%) in the U.S refining market. They might also look to swap oil for products with a refiner using off-take or tolling agreements. After years of decline in the Mexican-to-US energy trade and with the dramatic change in the North-America crude oil flows, Pemex is redefining its role in the North-American energy landscape.


Sources: Canadian Oil Surge to U.S. Gulf Puts Mexico on Defensive, Bloomberg

Exclusive: Mexico’s light crude, shunned for U.S. shale, sails east, Reuters

the trade shipping finance wizard logo 2015 1.1



 © 2015 Navigating the commodity markets with Freight and Spreads


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