Commodities 2024: US refined product exports into Latin America to face growing competition

While Latin America and the Caribbean has led demand for US refined product exports for over a decade, interest might plateau in 2024 given new refinery capacity additions in the region alongside growing competition from Russia.

S&P Global Commodities at Sea data shows Mexico fronting most of the demand coming from Latin America, with imports from the US at 630,000 b/d in November, up from 540,000 b/d in November 2022. Chile imported 137,000 b/d November, down from 191,000 b/d in November 2022, while Brazil imported 122,000 b/d in November, down from 269,000 b/d in November 2022.

Columbia imported 87,000 b/d from the US in November, compared to 129,600 b/d last year. In Peru, November completed volumes are at 101,000 b/d while 10,500 b/d remains in transit. This is compared to November last year when volumes were at 153,000 b/d.

"We're still forecasting strong demand in Latin America in 2024, however, pent-up demand from the pandemic is already over for most products," suggesting demand growth would slow down, said Joao Lopes, an analyst at S&P Global Commodity Insights.

Latin America refined products demand is expected to average at 5.08 million b/d in 2024, up 1% year over year. However, as 2024 refining throughput in the region is expected to average 4.2 million b/d, up slightly on the year, but up 4% from 2022, imports are expected to slow. And additional refinery capacity is expected in 2025.

The switch to Russian barrels

While imports of refined products from the US into Latin America have fallen from recent peaks in 2022, total imports have picked up for December amid peak seasonal demand. Barrels from Russia, however, have increasingly displaced US supplies, primarily into Brazil.

Brazil imported 6.5 million barrels of diesel in November, and so far has imported 14.6 million barrels in December, CAS data showed Dec. 21. Of that, Russia was the primary country of origin into Brazil, providing 5 million barrels in November and 10.8 million barrels so far in December.

CAS data suggests Russia's market share of Brazilian imports will be in the 60-70% range by the end of 2023.

Market sources also said Brazilian importers have contracts for Russian diesel barrels already in place for delivery in January.

"One hundred percent of my imports are Russian and 90% of total imports in Brazil are Russian," one market source said.

Europe has been increasingly turning away Russian diesel following Russia's invasion of Ukraine in February 2022. While Russian diesel is still heading to Turkey, the Netherlands and Belgium, France and Germany are no longer importing Russian barrels, for instance.

Brazil's state-owned Petrobras has slashed wholesale diesel prices by 15.8% so far in 2023, bringing Brazil's prices closer to US Gulf Coast prices, making it harder to import US barrels. Market sources say it is still cheaper to import low-priced Russian barrels. Buyers will likely prioritize the Petrobras barrel and then use Russian barrels to supply what is lacking.

Refinery operations

On the supply side, refiners across Latin America have been performing at record highs, increasing domestic supply, which could lower the need for imports.

State oil company Petroperu said Aug. 25 that its 95,000 b/d Talara oil refinery is now 100% operational after completing work on a delayed $5 billion expansion project. S&P Global expects Talara run rates to increase in 2024, reaching 85-90% of capacity.

In Brazil, crude and condensate throughputs peaked in the fourth quarter at 1.97 million b/d and are expected to climb to 2 million b/d by 2025, according to S&P Global data. Total refinery utilization and throughputs were above the five-year average for most of 2023, with the trend expected to continue in 2024 driven largely by demand from the country's massive agricultural sector, S&P Global analysts said.

Chile saw a similar increase, nearing a five-year high during Q3 at 193,000 b/d while total refining throughput was estimated at 188,000 b/d in 2023, up 13% on the year. According to data collected by S&P Global, throughputs are expected to reach 210,000 b/d by 2025 before leveling out.

Colombia's refining throughput was estimated at 413,000 b/d in 2023, up 15% from 2022. Throughputs are expected to remain at current levels by 2025.

In Mexico, refinery inputs peaked in January 2023 at 834,000 b/d, but inputs are expected to rise by 2025 with the startup of the new Dos Bocas refinery.

"While it's entirely possible that Mexico will raise its refinery operating rate in 2024, this is to some degree aspirational as there's a considerable history of unplanned outages, whether due to earthquakes, hurricanes or other operational issues," Tim Evans, an independent analyst at Evans on Energy noted.

"There's also uncertainty over the ramp up of the new 340,000 b/d refinery at Dos Boas, with any delays a risk to the expected balance," Evans said.

The operating status of Mexico's new Dos Bocas refinery at the port of Olmeca is uncertain, but S&P Global analysts estimate that production could begin at the end of 2024. Startup at the refinery could reduce Mexico's net imports by about 100,000 b/d for gasoline and diesel, reducing the need for exports from US Gulf Coast refineries.

Still, new refinery capacity in 2024 remains minimal overall with only around 56,000 b/d expected to be online, suggesting the shift in reliance on US barrels will become more apparent in 2025 when an estimated 937,000 b/d is expected to be added.