FxPro Group says US restrictions on Russian oil imports could benefit Mexican economy

Cyprus-based FxPro Group Ltd has said that it expects the Mexican economy to reap benefits in the medium term from the US government’s decision to ban imports of Russian crude oil and natural gas.

In a market comment published on March 18, FxPro pointed out that restrictions that the administration of President Joe Biden has imposed on Russian oil imports in response to the invasion of Ukraine were likely to leave US refineries short of the heavier crudes they frequently use for feedstocks. The plants have traditionally used extra-heavy crude or synthetic blends from Venezuela, but these have been unavailable since early 2019 because of the sanctions introduced by the administration of former President Donald Trump, it noted.

Russian grades have helped these refiners compensate for the loss of Venezuelan feedstock, but now another substitute will be needed, and Canada and Mexico are the most likely candidates, FxPro said. This is likely to benefit Mexico’s oil industry – and Mexico’s national currency – in the medium term, it commented.

“Now the replacements [for Russian crude] will be Canadian and Mexican, which should benefit production levels and support [the Mexican peso’s] strength through higher export revenues,” it said.

FxPro also noted, though, that the Mexican peso had already realised some gains in the short term, even though it had not had enough time to see US refiners make a shift toward buying Mexican crude oil.

“The Mexican [peso] has added more than 4% over the last nine days against the US dollar ... At first glance, this rally does not seem logical, as oil [prices have lost ground] for most of this time, hurting oil-exporting Mexico. Nevertheless, in the short term, the [peso] has been steadily gaining ... following signs of a recovery in demand for risky assets in global markets,” it said.

FxPro did not say whether it expected Mexico’s government to adhere to its previously announced timetable for reducing crude oil exports to zero by the end of 2023 or move forward with more recent suggestions to continue delivering oil to world markets for a longer time.