OREANDA-NEWS. December 22, 2016. Mexican state-run Pemex is processing less of its declining crude oil production and prioritizing crude exports, reflecting a combination of operational and commercial dynamics.

Last month Pemex distributed a total of 2.090mn b/d, sending only 37pc or 783,000 b/d to its refineries and exporting the balance of 1.308mn b/d, according to preliminary data from Pemex's exploration and production division covering the 1-27 November period.

In 1-29 November 2015, Pemex had distributed 44.8pc or 1.06mn b/d of a total of 2.365mn b/d to its national refining system, earmarking the remaining 55.2pc or 1.305mn b/d for export.

Mexico's refinery runs are at record lows this year, a trend that Pemex executives vow to reverse in 2017.

In October, Pemex's six domestic refineries processed 802,100 b/d, 4.6pc more than in September but still 24.4pc below the October 2015 level.

Among the factors driving this trend is the increasingly heavy quality of Pemex's crude production. The company says the heavier crude it is extracting does not suit its ageing refineries, which were built to process lighter grades. Plans to upgrade the refineries and install cokers that would enable them to process heavy crude have fallen victim to sharp budget cuts since oil prices collapsed in 2014.

From a commercial perspective, Pemex may be better off exporting crude and importing gasoline and other oil products from more efficient refiners on the US Gulf coast.

Between January and October 2016, Pemex imported an average of 472,500 b/d of gasoline, 12.5pc more than it did in the same period last year.

Yet recent scattered fuel shortages point to underlying logistical risks. This week the company said inclement weather delayed fuel imports at the Gulf port of Tuxpan, sparking a deficit in some parts of the country, including Mexico City.

The enduring backstory is Pemex's declining crude production. According to the same preliminary company data for 1-27 November, Pemex produced 2.075mn b/d of crude, 1.3pc less than in October and 8.9pc below the same month last year.

Barring crude imports, the smaller production pie translates lower overall refinery utilization.

The government is hoping its 2014 energy reform that revoked Pemex's monopoly will begin to jolt these trends in 2017, beginning with fuel supply.

Starting this year, companies other than Pemex can open retail stations and import fuel, ahead of a gradual price liberalization. Energy regulator CRE unveiled a regional timetable for the price adjustments in a presentation today, in anticipation of open seasons for Pemex storage and pipelines in early 2017 that should help to ease bottlenecks in the underserved market.

"We are significantly underinvested in oil transport and storage," CRE president Guillermo Garcia Alcocer said at the presentation this morning.

Mexico's fiscal framework remains an obstacle. As of 12 December, the energy ministry had awarded 386 import permits for up to 329bn liters of gasoline and diesel. With the exception of small volumes bound for the mining sector, permit holders say a Special Tax on Production and Services (IEPS) has prevented them from launching imports, effectively retaining Pemex's import monopoly on motor fuels.