Mexico seeks foreign investment as it eliminates fuel price caps

Recently, Mexico shifted into a supply-and-demand based pricing structure for its fuel markets, ditching the old system where the government set the fuel price through state-owned oil company Pemex as it seeks to attract more U.S. investment. At the beginning of this year, the Mexican government switched to a maximum pricing structure . On the surface, the change seems significant, but a trigger mechanism in the Mexican law may not create much change for the marketplace, and a fuel expert says the change will likely have little impact on the fuel supply or cost in the U.S.

Officially, what Mexico did on Nov. 30 was to “fully liberalize” its markets. Prior to that date, fuel prices fluctuated, but no fuel station – either gasoline or diesel – could sell fuel above a price set by the Mexican government in a region that had not been liberalized. Most fuel stations, according to Matt Muenster, senior manager-applied knowledge at Breakthrough Fuel, typically were priced near the max.

“The trend has been that most fuel stations in regional areas where the maximum prices were in effect were up against the maximum price cap,” he tells FreightWaves. “Overall, liberalization of fuel prices should not affect U.S. prices.”

By liberalizing fuel pricing, Mexico is allowing stations to charge based on market demand and costs, although the nation will still use a “fiscal stimulus” to help regulate prices. The stimulus is an excise tax that Mexico has used before to control prices. As prices rise, the tax is relaxed, while it is increased when prices drop.

Mexico began a liberalization process in parts of the country earlier in the year, and saw a 20% spike in prices on Jan. 1, which is why it has implemented the excise tax as it has increased liberalization across the country. As of Nov. 30, the entire nation is now operating under the liberalization policies.

The move towards more liberalization of the fuel market has been ongoing for several years, Muenster explains. Back in 2013, Mexico began a legislative process to move toward a deregulated fuel market to spur foreign investment. All fuel in the country had previously been managed by Pemex. Since 2015, U.S. exports to the country have more than doubled what Mexico is exporting to the U.S.

“This is a trend that has occurred for a couple of years now,” Muenster notes. “It’s been a slow, gradual trend over the past couple of years. It’s been helpful to the U.S. refiners, but it hasn’t had much impact on U.S. prices.”

Muenster says that much of the change in the Mexican market is due to the aging infrastructure of Pemex, which doesn’t have the money necessary to rebuild properly and continue supplying the entire nation. The hope is that these policies will spur more U.S.-based companies to ship fuel into Mexico and set up operations.

Recent fuel prices in Mexico have averaged between $3.25 and $3.50 a gallon, Muenster says. For U.S. fleets operating in both countries, the new policies should create a little more transparency in the Mexican fuel market, giving them the opportunity to better manage their fuel spend.

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