Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Valero Energy Corporation (VLO), Phillips 66 (PSX), Marathon Petroleum Corp (MPC): The US/Mexico Energy Trade

Valero Energy Corporation (NYSE:VLO)For years we’ve been hearing about how much oil we import from foreign sources, particularly the Middle East. While it’s true that we import a lot of our oil, there’s a bit more to the story, especially when you look at the trade between the U.S. and Mexico.

Last year, the energy trade between the U.S. and Mexico topped $65 billion. That trade represented 11.4% of our total oil imports, which puts our southern neighbor behind only Canada and Saudi Arabia in this category. The energy trade represented 13% of the overall trade between the U.S. and Mexico.

As an interesting side-note, the oil trade is much larger than the drug trade, which is estimated to be somewhere in the $19 billion to $29 billion range each year. Estimates regarding the total percentage of drugs in America that either originate in, or travel through, Mexico range from 40% to 67% of marijuana and 95% of all cocaine. While that’s still a saddening amount of drugs crossing our borders, it’s an interesting benchmark when thinking in terms of the energy trade between the two countries.

Further, the oil trade with Mexico highlights an interesting dynamic. Even as the U.S. imports a significant amount of Mexican oil, a large portion of that amount is returned in the form of refined petroleum products, mainly because our refineries are equipped to process the heavy crude that comes from Mexico. This crude can be purchased more cheaply than the light crude in the States and then exported back to Mexico or other countries in the form of refined products. It’s this global gas trade that’s causing a growing amount of the gasoline produced in the U.S. to disappear beyond our borders.

Simply put, a lot of oil and petroleum products flow back and forth between the two nations:

Source: Energy Information Administration.

Another reason refined products are moving off our shores is that Americans are driving less while also operating more fuel-efficient cars, all as international demand for refined petroleum products remains robust. This scenario has pulled more products into the export market, which is paying a premium. That’s been important to Valero Energy Corporation (NYSE:VLO), which has managed to capture an average of 20% to 25% of this export market.

The export market has indeed been robust, with Mexico being one of the most important markets:

Source: Valero Investor Presentation