Regan Brown
Mexico has recently undergone its first significant energy reform in over 80 years, opening its fuel markets to outside investment. This has led to a rapid transformation of its energy sector, and fuel prices have reached record highs. As of 25 June 2024, the national average retail price for diesel in Mexico was Ps25.38 per litre, up 7% from the previous year. This price increase is attributed to lower tax deductions and higher international prices. With these changes in the energy sector, accurate commodity price discovery is critical for businesses looking to enter the Mexican market and maximise their ROI.
| Characteristics | Values |
|---|---|
| Retail price of diesel in Mexico | Ps25.38/l ($4.95/USG) |
| Price of diesel delivered to Mexico's east coast from the US Gulf Coast | $2.50/USG |
| Exchange rate | Ps18.13/$1 |
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What You'll Learn
Mexico's diesel prices hit record highs
Mexico's diesel prices have reached unprecedented levels, with the national average retail price for diesel hitting a record high of Ps25.38/l on 25 June 2024, marking a 7% increase from the previous year. This surge in diesel prices is not an isolated incident, as Mexico's average retail prices for gasoline have also climbed to all-time highs, with regular gasoline retail prices reaching Ps23.73/l ($4.95/USG) on the same date.
Several factors have contributed to this situation, including lower tax deductions and higher international prices. In addition, the depreciation of the Mexican peso after the elections has made fuel imports more expensive. According to Mexico's central bank Banxico, the exchange rate stood at Ps18.13/$1 on 25 June 2024, representing a 5% increase from the previous year.
The rising fuel prices have had a significant impact on Mexico's economy. Notably, Mexico's association of finance executives IMEF has lowered its 2025 growth forecast for the country, citing the growing impact of US tariffs. As a result, the expected GDP growth for 2025 has been downgraded to 0.1%, a significant drop from earlier estimates of 0.2% in April, 0.6% in March, and 1% in February.
With Mexico undergoing its first significant energy reform in eight decades and opening its fuel markets to outside investment, businesses are keenly monitoring the evolving landscape. Accurate and transparent commodity price discovery is critical for stakeholders aiming to maximize their ROI in this emerging marketplace. The Mexican government's Public Policy for Minimum Storage of Petroleum Products (PPMSPP) also adds another layer of complexity to the fuel pricing dynamics in the country.
As diesel prices continue to soar, the Mexican government and businesses navigate a challenging energy landscape. The situation underscores the importance of staying abreast of market trends and making informed decisions regarding fuel supply contracts, investments, and import/export strategies.
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Fuel imports are expensive due to the Mexican peso's depreciation
The depreciation of the Mexican peso has had a significant impact on the country's economy, including the cost of fuel imports. In December 1994, the Mexican government devalued the peso against the US dollar, sparking a currency crisis. This decision was influenced by various factors, including political instability and a violent uprising in the state of Chiapas. The devaluation of the peso led to a decrease in investor confidence and an increase in capital flight, further reinforcing the downward pressure on the currency.
As the peso depreciated, the cost of importing goods, including fuel, became more expensive for Mexico. This is because a weaker domestic currency means that more pesos are required to purchase foreign currency, such as US dollars, which are needed to buy imported goods. The depreciation of the peso also contributed to a trade deficit, as domestic businesses and consumers could purchase more imports, leading to an imbalance between imports and exports.
The impact of the peso's depreciation on fuel imports is particularly notable due to Mexico's reliance on imported petroleum products. In 2023, Mexico imported petroleum products such as gasoline, diesel fuel, and propane from the United States, with these imports accounting for 87% of total energy exports to the country. While the volume of US petroleum product exports to Mexico increased by 1% from 2022 to 2023, the value of these exports decreased by 9% when adjusted for inflation.
The depreciation of the peso has also contributed to issues with illegal fuel imports and blending. Illicit suppliers have taken advantage of the situation by avoiding taxes and creating dangerous blends with lower-cost components like methanol, naphtha, and base oils. These practices have become more prevalent as fuel prices have increased, with illegal fuel blends undercutting the market and posing risks to vehicles and the environment. The Mexican government's efforts to tax fuels and subsidize retail fuel prices have had mixed results, with some success in reducing illegal sales but also contributing to the incentive for illicit suppliers to blend fuels illegally.
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Retail prices for diesel reached an all-time high in June 2024
On 25 June 2024, Mexico saw its retail prices for diesel reach an all-time high of Ps25.38 per litre. This represented a 7% increase from the previous year. The record-high prices were driven by relatively lower tax deductions and higher international prices. The price increase also affected gasoline, which rose to Ps23.73 per litre ($4.95 per US gallon) on the same date, an 8% increase year-on-year.
The rising fuel costs in Mexico have been influenced by several factors, including the depreciation of the Mexican peso, which has made fuel imports more expensive. The exchange rate on 25 June stood at Ps18.13 per US$1, a 5% increase from Ps17.14 per US$1 the previous year. The growing impact of US tariffs has also played a role, with Mexico's association of finance executives IMEF lowering its 2025 growth forecast for the fourth consecutive month. As a result, GDP is now expected to grow by just 0.1% in 2025, according to IMEF's May survey.
The high fuel prices have had a significant impact on various sectors, particularly aviation, where fuel costs typically account for 30-40% of airlines' expenses. Military confrontations between India and Pakistan in May 2024 disrupted flights to and within India, with almost 32 airports temporarily closing due to security concerns.
With Mexico undergoing significant energy reforms and opening its fuel markets to outside investment, businesses are keen to enter this emerging marketplace. Accurate and transparent pricing information is critical for companies looking to seize opportunities and make profitable investments in the country's rapidly transforming energy sector.
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Mexico's energy reform opens its fuel markets to outside investment
In 2013, Mexico debated and approved a Constitutional Reform to open its energy markets to private and foreign investment for the first time in 75 years. The reform has had a profound impact on the country's oil, gas, and electricity sectors, and it has also led to attempts to restructure the national oil company, Pemex, and the national electricity utility, the Comision Federal de Electricidad (CFE).
Mexico has been experiencing a decline in crude oil and natural gas production, high energy costs, and inefficient energy services. The energy reform aims to address these issues by increasing competition and investment in the energy sector. For example, the transport and storage markets are now open to private participants, which is expected to increase supply. The Ministry of Energy also plans to expand domestic pipeline infrastructure and increase natural gas transport within Mexico, which will help lower electricity prices for firms.
The electricity sector has also undergone reforms, with earlier changes allowing some competition with the Federal Electricity Commission and private actors being permitted to produce power. However, independent power producers were previously limited in their ability to sell power directly to third parties. The authorities are now considering expanding the scope of qualified users allowed to buy electricity in the wholesale market, which could benefit end-users through lower natural gas and electricity prices.
While Mexico's energy reform has been praised for its ambition and rapid implementation, it continues to be a contentious issue between analysts, politicians, and those seeking greater national control of the country's energy resources. Modifications to regulations and key regulators are needed to ensure that Mexico's market remains competitive and that the benefits of an open and competitive energy sector are fully realized.
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OPIS offers a Mexico Fuels Report with daily fuel prices
OPIS offers a comprehensive Mexico Fuels Report, providing daily fuel price updates for businesses operating in Mexico or seeking to enter the market. This report is particularly relevant given Mexico's recent energy sector reforms, which have opened up fuel markets to outside investment. The OPIS Mexico Fuels Report offers a detailed breakdown of fuel prices, including gasoline, diesel, and jet fuel.
The report helps businesses navigate the complexities of the Mexican fuel market by providing transparent and unbiased pricing information. This includes an assessment of the price of Mexico-delivered gasoline and diesel fuel, based on OPIS's daily evaluations of U.S. benchmark refined product spot markets. It also identifies the RVP and octane blend values across different regions in Mexico, ensuring a clear understanding of the cost structure for supplying fuel across the border.
Additionally, OPIS provides an implied wholesale price calculated daily at over 50 Mexican terminals, using both retail and spot values. This information empowers businesses to make informed decisions about their fuel purchases and sales. By utilizing OPIS data, companies can protect critical retail margins, effectively manage wholesale fuel costs, verify supplier charges, and optimize product prices to maximize profits.
The Mexico Fuels Report also sheds light on Mexico's Public Policy for Minimum Storage of Petroleum Products (PPMSPP) and its evolution. This free report offers insights into the uncertainties and challenges surrounding this policy. Furthermore, OPIS provides updates on Mexico's energy markets, covering infrastructure, regulations, and imports/exports. With its price transparency and expert insight, OPIS helps businesses succeed in the dynamic Mexican fuel market.
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Frequently asked questions
As of June 25, 2024, the price of diesel fuel in Mexico reached an all-time high of Ps25.38/l.
The rise in prices can be attributed to lower tax deductions and higher international prices. The depreciation of the Mexican peso has also made fuel imports more expensive.
On June 25, 2024, the delivered diesel price to Mexico's east coast from the US Gulf Coast was $2.50/USG.
Gasoline and diesel are the primary fuels used for vehicles in Mexico, with retail prices for regular gasoline reaching Ps23.73/l ($4.95/USG) on June 25, 2024.
Yes, regional gasoline specifications in Mexico differ from the fuel pricing in US benchmark spot markets.
