Falling Latam demand deprives US refiners of top customers

Latin American demand for refined products is rapidly drying up as the coronavirus pandemic worsens, leaving US refiners without their main export destination.
The crisis has nearly shut down worldwide air travel and fuel demand, which is expected to fall between 10% and 36% in Latin America through the first half of the year.
Although the coronavirus had not hit Latin America with the same intensity as Europe or the United States, a growing number of nations are imposing travel restrictions as it spreads.
In recent days the region's largest importers began cutting orders of fuel cargoes, which are mostly executed on the volatile spot market, as consumption falls, sources at trading and refining firms told Reuters.
They said Latin America's two largest importers, Petroleos Mexicanos and Brazil's Petrobras, have cut the number of cargoes of gasoline and diesel for import in the coming weeks, while grappling with swelling inventories.
The US exported 2.9 million barrels per day of fuel to Latin America and the Caribbean last year, US Energy Information Administration data shows, making the region the largest buyer of American refined products, and a steady customer for US refiners.
In Mexico, which bought 1.19 million bpd of fuel from the US in 2019, retail demand contracted 15% in the last two weeks, its fuel sellers association, Onexpo, said, while prices began falling at gas stations.
"Latin America's jet fuel, gasoline, and diesel demands are just starting to collapse," consultancy IHS Markit said in a report on Thursday. It expects Mexico's situation to be more challenging due to its dependence on US fuel, so imports might flood the nation, constraining domestic output.
US fuel exports to Latin America have been affected by a "super lockdown," one fuel trader at a merchant said.
"Most opportunistic purchases motivated by falling prices have disappeared as the largest importers in the region don't have large capacity to store gasoline or diesel," another said.
And US refiner Phillips 66 said on Tuesday that some of its Latin American customers were asking if they could back out of purchases.
Mexico's largest importer, Pemex, had already cut fuel imports by 12% in the first two months of 2020 to some 752,000 bpd. The firm's US fuel imports have also declined at the expense of new entrants such as ExxonMobil, BP and Valero Energy, said Michael Upchurch, chief financial officer at US railroad Kansas City Southern, a shipper of fuels to Mexico.
In Brazil, the largest Latin American buyer of diesel, domestic fuel sales recently fell by an average of 50% in cities with more than 300,000 inhabitants, a union representing more than 40,000 gas stations said on Wednesday.
Local Brazilian authorities are trying to restrict travel to combat the coronavirus outbreak, even as President Jair Bolsonaro opposed shutdowns.
On Friday, fixtures and Refinitiv Eikon vessel data showed a diesel and gasoline cargo scheduled for exports from Brazil in April, suggesting Petrobras is trying to get rid of its surplus.
Venezuela, a regular importer of diluent naphtha, gasoline and diesel, has reduced purchases this month to about half, mainly due to US sanctions limiting the suppliers that can work with state-run PDVSA, but also because of plummeting demand following gas station closures.
Pemex and PDVSA did not respond to requests for comment. Petrobras declined to comment.
Early reports of crude run cuts in Latin America show some refiners are considering a reduction of up to 25%, IHS said.
In Colombia, Ecopetrol noticed a fall in fuel demand, which already prompted cuts at its Cartagena and Barrancabermeja refineries.