Mexican Oil Crisis
Crisis of Consumption
You may not be familiar with Rudesindo Cantarell, but you'll most likely recognize his surname...
He's the reason 1971 was a monumental year for Mexico.
I like to think of it as Mexico's "Jed Clampett moment" — only with a stubborn fisherman as the protagonist instead of a hillbilly.
After discovering an oil slick, Cantarell told a friend that worked for Pemex, who passed the information along up the chain of command... Naturally, they ignored him.
Eventually, however, Pemex sent a few men to investigate the complaint, and Rudesindo Cantarell led them to the spot. The first production well began flowing from the field less than ten years later.
Of course, we all know the story behind the Cantarell field's downfall. Once production started to decline, Pemex began injecting nitrogen to boost output. But this strategy was short-lived, and production at the field has been dropping sharply since — roughly 14% each year for the last six years.
Cantarell's decline marked the beginning of the end for Mexican oil production.
The country's new finds have also proven underwhelming. The recent discovery by Pemex in Southern Mexico is a perfect example. According to Pemex, the new field holds up to 500 million barrels of crude oil, a trifle compared to the billions of barrels Cantarell once held.
But these days, Mexico will take whatever it can get... and pray it can hold off the decline.
Crisis of Consumption
Mexico's declining oil production means there's less oil available for export.
Those 2.5 million barrels flowing from Pemex's wells daily are crucial to the country's stability.
When almost 40% of your government budget is paid from oil revenue, exporting less oil is not an option — but that's exactly what's happening (click charts to enlarge):
During the first eight months of 2012, Mexican oil exports to the United States were slightly above one million barrels per day. Last May oil exports fell below one million barrels per day for the first time in 27 years.
Barring some miracle taking place in Mexico's oil industry, I believe the country will be a net oil importer within ten years.
Feeding an Oil Addict
But there's an even bigger problem on the horizon.
You see, not only is Mexico selling us less oil, but we're selling that oil right back to them — and at a hefty premium.
What's more, Mexico's own demand for crude is only increasing...
Although Pemex is among the largest oil refiners, they aren't able to keep pace with Mexico's demand. The country imports almost half of its petroleum products (gasoline, diesel, and such).
And Pemex has enough problems simply trying to reverse the long-term production decline that came as a result of Cantarell's production peak. The company spends more money in one year buying U.S. petroleum products (about $26 billion last year alone) than improving their refining infrastructure ($24 billion) over the next decade!
There's only one place left to turn to satiate Mexico's need for crude — and it's an opportunity many have missed this year...
The Winning Oil Sector in 2013
The last six months have been nerve-racking for everyone.
In a market that swings wildly based on outside factors like Europe, this year's presidential election, and Congress' inability to make decisions, it seems like we're doing more panicking today than we are actual investing.
More importantly, this chaotic environment causes investors to overlook upcoming opportunities hidden in the energy sector.
Oil refining stocks fall into this category.
Mexico's crisis of failing production/rising demand is just one of the reasons the United States became a net oil exporter in 2011.
Some investors adjusted accordingly, managing to outperform Big Oil no matter what mainstream news sources are feeding to the masses...
Of course, these stocks are just one set of hidden investment gems in the oil and gas patch.
Truth is these opportunities are popping up all over the North American landscape. There's a little something for everyone, whether you're looking to invest in the short term or for the long haul.
As always, it's up to you to make the first move.
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.