Pemex is struggling–to put it lightly. Petroleos Mexicanos, Mexico’s long-mismanaged state-owned oil company, has been bleeding money as its production levels have fallen to a trickle of their former production levels over the last decade. Now, Pemex is reporting a 36 billion peso ($1.9 billion U.S. dollars) loss in the first quarter.
While these numbers are grim, especially compared to the 113-billion-peso profit reported in the first quarter last year, Mexican officials say that things are headed in the right direction for Pemex. It’s true that a loss of 36 billion pesos in the first quarter is a marked improvement over the previous quarter’s crushing loss of 157.3 billion pesos. Furthermore, officials at Pemex are reporting that the new tough-on-corruption administration, headed by leftist Mexican president Andrés Manuel López Obrador, has had considerable success in its efforts to cut down on fuel theft–locally known as huachicoleo–a persistent and widespread issue in Mexico.
Mexican officials went on to say that this quarter’s lessened rate of loss is a direct result of the company’s new direction under López Obrador as well as a 121-billion-peso foreign exchange profit. Officials also claim that Mexican crude production, which has been in severe decline for the last 15 years, is now finally under control. So far this year, Mexico averaged 1.69 million barrels per day of crude production, and Pemex reports that the goal for 2019 is a total production of 1.725 million barrels per day. “We have made improvements, although gradual ones. We have advanced in all areas. The challenges will require time to resolve but the trend is clear. . . Pemex is moving in the right direction,” Pemex chief financial officer Alberto Velázquez was reported by Financial Times to have said in a conference call with analysts.
There are many who would disagree with the assertion that Pemex is, in fact, now under better management and “moving in the right direction”, however. Just last month, López Obrador’s strategy for Pemex was the focus of major political division when his plan for the new Dos Bocas refinery in his home state of Tabasco was found to have a laughable 2 percent chance of success, according to a unequivocally damning report by Mexican think tank Instituto Mexicano para la Competitividad.
Now, there is cause for even more uncertainty about the future of Mexico’s volatile oil industry. This week, the Trump administration shocked oil insiders, experts, and analysts around the world when they announced that they would not be extending waivers for the eight countries who had been allowed to continue buying Iranian oil in reduced quantities. On the surface, it would appear that this has nothing to do with Mexico, as they were not one of the eight nations to receive a waiver in the first place. However, the move has major implications for Mexican heavy crude exports, now that major heavy oil consumers like India will be looking for new sources of heavier oil to replace the Iranian and Venezuelan heavy crude now unilaterally cut off by U.S. sanctions.
While this would seem like great news for cash-strapped Pemex, the company’s perceived unreliability may keep potential buyers at bay. One Mexico City-based energy analyst with consultancy group Mercury told S&P Global Platts, “There is much uncertainty surrounding Mexico’s crude balance, I have some skepticism in general terms that heavy crude exports could be increased considering a short period and Pemex’s limited resources and efficiency.” Energy analyst Arturo Carranza went on to say, “It is more likely that Saudi Arabia or Russia will be a supply alternative for India and other Asian countries than Mexico.”
Even though Pemex has had some success stabilizing its free-falling crude production in the last quarter, they’re a long way from being able to considerably increase their production to fill even a fraction of the demand left by the disappearance of Iranian and Venezuelan oil from the global market.