The second best business in the world is not business for Pemex

A week ago, it was not so obvious that this was going to be a record quarter for oil company finances. Crude oil prices and refining margins, while still high, had eased somewhat. That caused many analysts to underestimate the profits of the oil companies. Very few imagined that Chevron was going to have its second best quarter in history. Or that ExxonMobil’s profits were going to be, like many years ago, a stone’s throw from Apple’s.

Here is evidence that a rising tide lifts almost all ships: virtually every oil company that has reported so far has shown good results. But it is also confirmed that the leading companies in the sector have learned some of the lessons of recent years. Even amid the slowdown, tight cost control and disciplined capital deployment fueled extraordinary earnings.

Unfortunately, Pemex continues to march in the opposite direction. To be fair, that their production increases, like those of this quarter, are accompanied by increases in losses is no longer much of a surprise. That its earnings this quarter had shrunk, with the gradual decline in prices, was understandable. But having operating losses in refining at this price level, after so much investment, makes Pemex’s results truly extraordinary in the sector. The industry’s crack spread in the United States, which measures the difference between the price of a gallon of crude oil and one of gasoline, remained consistently positive, hovering around 20 cents per gallon (about $8.4 per barrel). So from the same results of Pemex it can be inferred that it would have needed an exorbitant spread of more than 15 dollars per barrel just to stop losing money.

This contradicts what President López Obrador and his Administration were presuming just a few months ago. At that time, with gasoline prices skyrocketing, they were sure that their investments in refining had proven to be truly visionary – they believed they had found a round and guaranteed deal.

The results of this quarter are a painful reminder that the results of the industry are not the same as those of Pemex. Perhaps it is true, as the president loves to say, that “mismanaged oil is the second best business in the world.” But not for Pemex, which not even in the best of contexts stops losing money.

Going forward, Dos Bocas is unlikely to turn around Pemex’s refining business. Of Deer Park, which is already part of the poor results of Pemex, not to mention. The other way around – most in the industry view the foreseeable future with concern. Demand, gasoline prices, and refining margins do not appear to return to second quarter records. In this context, the response of many refiners will continue to be to adjust utilization (the level of use of their refineries) in order not to lose money. How could Pemex overcome a requirement of 15 dollars per barrel in refining other than shrinking?

Meanwhile, the Mexican government continues to insist that this is about having more iron, whatever it costs, and using it as much as possible. If this premise does not change, Pemex’s losses can only get worse.