Valero Energy Corporation (VLO), Phillips 66 (PSX), Marathon Petroleum Corp (MPC): The US/Mexico Energy Trade

This trade has been the driving force behind refiners like Phillips 66 (NYSE:PSX) and Marathon Petroleum Corp (NYSE:MPC) ramping up export capacity. Last quarter Phillips 66 was exporting around 150,000 barrels per day of gasoline and diesel while it has the capacity to export up to 320,000 barrels per day. The company aims to increase its export capacity to 500,000 barrels per day, or about a third of its total domestic output, in the near future. Meanwhile, Marathon Petroleum Corp (NYSE:MPC) has grown its exports from 35,000 barrels per day to a 131,000 barrels per day average this year.

Increased export capacity is important according to Tesoro Corporation (NYSE:TSO) CEO Gregory Goff who noted that the profitability of the refining industry will be increasingly dependent on its ability to expand export capacity in the future. Because fuel demand is waning in the U.S. refiners need to take advantage of the growing appetite for fuel globally. He also said that, “our country now ships more gasoline and distillates overseas than any other U.S. export.” While a lot of that is simply going back to Mexico, it’s important for that trend to continue in order for refining margins to stay high.

The energy trade between the U.S. and Mexico really is a two way street. American Gulf Coast refiners want to be able to purchase the discounted heavy sour Mexican crude which can trade between a $5 and $10 less than Brent crude oil. That helps to increase crack spreads and profitability at refiners. Because Mexican refineries aren’t as well equipped to handle this heavy crude oil it makes sense to ship it out to be refined and then reacquired it as a lighter grade product such as gasoline or diesel. Now, if only the drug trade was so beneficial to both sides.

The article The U.S. Imports More Oil Than Drugs From Mexico originally appeared on Fool.com and is written by Matt DiLallo.

Fool contributor Matt DiLallo owns shares of Phillips 66. The Motley Fool has no position in any of the stocks mentioned.

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