Wednesday, July 16, 2008

Mexico's Oil Exports

How much does your financial adviser really know about oil? Does he know, for example, that Mexico, one of the top oil exporting countries in the world and a key source of oil for the United States, could see its net oil exports hit zero in late 2010?

That’s the forecast of Jeffrey Brown, the Texas-based petroleum geologist who is one of a small group of unaffiliated energy analysts whose collective research serves as a warning to financial markets to beware unexpectedly sharp falloffs in the amount of crude available to the U.S., China and other giant oil-importing nations. Brown’s work highlights in part how rising domestic oil consumption in big oil-exporting countries such as Saudi Arabia and Mexico can cause those countries’ oil exports to fall faster than would be indicated from a straight analysis of production rates.

Although still largely ignored by Wall Street investment banking firms, Brown’s work is gaining greater acceptance in the energy industry, as the economies of oil producers in the Middle East and elsewhere experience an economic boom that fuels domestic oil demand. In the case of Mexico, Brown told last week that, even assuming flat domestic consumption of 2.1 million barrels a day, Mexico’s net oil exports fell so sharply between September 2007 and May 2008 that they are on track to hit zero in late 2010.

Whether or not Wall Street is paying attention to Brown, investors need to, because if his analysis is correct, ironically the global squeeze on “exportable” oil is going to get worse even as more Americans cut back on their driving. Simply put, the price of oil may continue to rise even as the consumption of oil declines in the U.S., the world’s biggest oil user, as the U.S. and China bid up available cargoes coming out of the Middle East to replace lost supply from Mexico and Venezuela, the latter another country whose net exports, Brown says, are going down fast. Moreover, as global dependence on oil shipped through the Persian Gulf grows, so too will oil’s risk premium, a surcharge traders tend to slap on every time it looks like Iran and the West really may come to blows.

Source - EnergyTechStocks


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