Recently announced crude oil swaps with Mexico likely to provide economic and environmental benefits

Under licenses approved earlier this month by the Bureau of Industry and Security (BIS), an office within the Department of Commerce that administers export controls on crude oil, volumes of crude oil produced in the United States and Mexico up to the approved volume cap will be exchanged. These swaps will likely involve U.S light sweet crude, such as the growing output from shale formations in the United States, and Mexican heavy sour crude.

The approved swaps are expected to be both economically and environmentally beneficial due to differences in U.S. and Mexican refineries. With significant coking and desulfurization capacity, U.S. Gulf Coast refineries are well-suited to process heavy sour crude. Conversely, part of the Mexican refinery fleet is configured to run light sweet crude. Therefore, the exchange should result in better optimization of refineries within both Mexico and the United States, and allow for increased supply of lower-sulfur gasoline from Mexican refineries.

Crude swaps are provided for in longstanding regulations governing crude oil export controls. However, no licenses for swaps had been granted until BIS’s August 14 announcement of swaps with Mexico. According to trade press, pending applications for other crude swaps involving countries in Europe and Asia were not approved.