The Phaserl


A New Crisis Kicks off in Mexico

from Wolf Street:

Pemex, Mexico’s over-indebted, money-losing state-owned oil giant, appears to be in a state of terminal decline. To survive, it needs some last-minute reprieve or miracle. Instead, what Pemex gets are tragic industrial accidents — the body count of the last accident alone was 32 — hemorrhaging losses, and an ever worsening balance sheet.

The latest point of consternation is the catastrophic performance of the company’s exports. Even by recent standards, the numbers make for dismal reading. In the first quarter of 2016, Mexico’s oil exports totaled $2.67 billion, compared to $5 billion in the same period last year — almost a 45% drop! It’s the company’s worst export performance since the first quarter of 2002.

This is a function of the oil price plunge and the deteriorating oil production in Mexico. At this rate, Pemex won’t have an export market left to speak of, especially with U.S. demand for Mexican oil slipping 18% in January and February alone.

If you step back a little further in time, you get an even starker picture of the sheer scale of the carnage. In 2011, when the price of Brent crude averaged over $100, Pemex’s export revenues hit a historic peak of $49 billion, working out at a monthly average of $4.11 billion. In the first quarter of 2016 the monthly average was just $893 million. That’s a plunge of 78.2%.

To make even matters worse, as Pemex’s exports dwindle, Mexico’s imports of oil and gas continue to grow. Mexico imports more gasoline, diesel, and natural gas than it exports in crude oil. Petroleum accounted for two-thirds of last year’s $14.5 billion trade deficit, which was the widest since 2008.

For the broader Mexican economy, Pemex’s woes are just part of the problem. With the overseas market for Pemex’s oil shrinking at such a fast rate while the company’s production continues to crumble, Mexico will depend even more on its manufacturing sector. But that, too, is showing serious signs of strain.

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