Subterranean Homesick Blues -- December 11, 2015

President Obama is reporting that Mexican crude oil shipments to Europe and Asia are rising as U.S. imports fall. Actually he may not be personally reporting it -- he probably doesn't even know -- but it's one of his agencies reporting that Mexican crude oil shipments to Europe and Asia are rising as U.S. imports fall.

In September 2015, monthly U.S. crude oil imports from Mexico totaled 0.6 million bopd, the lowest level since 1990, and a decrease of about 50% since January 2011.

Meanwhile, Mexico's exports of heavy crude oil to Asia and light crude oil to Europe rose, according to data from Mexico's national oil company Petróleos Mexicanos (Pemex).

Most of Mexico's exports are of heavy crude oil, which Pemex defines as crude oil with an API gravity equal to or below 27 degrees.

Heavy crude oil volumes sent to U.S. Gulf Coast PADD 3 refineries have fallen as new infrastructure has allowed greater volumes of Western Canadian Select heavy crude oil to reach PADD 3 refineries.

In addition, production of Maya crude oil from the offshore Cantarell field, traditionally Mexico's largest oil field, has decreased significantly.

As Mexican heavy crude oil exports to the United States have decreased, increasing volumes have been sold to Asian markets, especially India, and to a lesser extent South Korea and Japan. Greater volumes of heavy crude oil have been processed in Mexico's domestic refineries, partially offsetting a decline in processed volumes of lighter domestic crude types.

This is an extremely important story to understand. Again, it's not just the total glut of oil, but the type of oil. Also note that despite the fact that the Keystone XL did not get built, more than enough heavy oil is reaching the US from Canada.

I flip-flop on the issue of the Keystone, it seems, every six months. In the big scheme of things, it seems not to be an issue.

Eventually, US lawmakers will see this Mexican story and the move to allow US exports of highly flammable Bakken oil will move forward through the efforts of the highly influential senator from North Dakota, the honorable Heidi Heitkamp. 

Note: American refineries along the coast are optimized for heavy oil. And yet, heavy oil from Mexico into the US has been cut by 50% since the Bakken boom. What gives? The Bakken is light oil; US refiners need heavy oil (Europe needs light oil). Heavy oil from Canada is making up the difference and it's arriving on rail because Americans have a romantic relationship with rail and hate subterranean things they cannot see.

Subterranean Homesick Blues, Bob Dylan