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Pemex's PMI declares partial force majeure on fuel

Susana Gonzalez/Bloomberg

Pemex's PMI previously declared a force majeure on fuels from PMI from May to July

- Pemex's Trading Arm PMI seeking to delay some deliveries to second half of year
- Backlog of more than 70 tankers; may extend until 4th quarter

By David Marino/Bloomberg

MEXICO CITY
Petroleumworld 05 11 2020

Petroleos Mexicanos 's trading arm PMI has declared a force majeure on some fuel cargoes, deferring other cargoes until later in the year, after measures to contain the coronavirus outbreak pummeled demand.

Some fuel deliveries are being postponed until the second half of the year, according to people familiar with the situation. More than 70 tankers were waiting to unload cargoes at Mexico's ports at the start of the month and tankers at the port of Pajaritos were being diverted to other ports to reduce the congestion, said another person, who asked not to be identified because they weren't authorized to speak to the press.

The delay in taking fuel cargoes is a blow to U.S. Gulf refiners, who count on Mexico as a major customer. American refiners that have been battered by the loss of domestic gasoline and jet fuel demand amid state and local lockdowns are also seeing lower demand for their exports.

The current cost of holding a cargo in a ship off major Mexico ports past the delivery date, known as demurrage, is $25,000 a day, according to shipping rates provided to Bloomberg. The backlog could continue until the fourth quarter of the year and could cost Pemex billions of dollars, one of the people said.

Pemex previously declared a force majeure on fuels from PMI from May to July, shifting the burden of addressing the country's storage crisis onto its international trading subsidiary. The legal term “force majeure” typically describes an unexpected, external event that makes it impossible for a party to fulfill its obligations under a contract. Pemex said during its earnings report last week that demand for fuels fell an estimated 72% from April 1 to April 28, compared with the previous year.

Pemex did not immediately respond to requests for comment.

Mexico President Andres Manuel Lopez Obrador has shrugged off the challenges facing Pemex amid the coronavirus crisis. In his daily press conference on Friday he said Pemex is starting to see some gains with the slight increase in the price of crude. “Yesterday the barrel was at $22 . With it, we have profits,” he said.

Analysts are less sanguine. Pemex posted a staggering $23 billion record loss for the first quarter this year and some expect Pemex to post bigger losses in the second quarter. Its bonds were plunged into junk territory by Moody's Investors Service last month, following several other downgrades by Fitch Ratings and S&P Global Ratings.

Yet the oil company remains at the heart of Lopez Obrador's plan to end decades of neoliberal energy policy. After assuming power in December 2018, the leftist president ordered Pemex to build a new $8 billion refinery in his home state, and he canceled competitive oil and gas auctions that would have allowed Pemex to share the burden of developing Mexico's oil fields.

The beleaguered driller's production has declined every year since a 2004 peak of 3.4 million barrels a day, and its debt of more than $100 billion is the highest of any oil major. Its refineries were running at 41% of capacity at the end of April. The plants lose more money the more fuel they produce because of a lack of maintenance and refurbishment of aging machinery.

Reporting by David Marino from Bloomberg.

bloomberg.com
05 09 2020

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