OREANDA-NEWS. December 16, 2016. A pending change to the price formula for Mexican heavy sour Maya crude shipments to the US Gulf coast will likely add cost and uncertainty to the grade.

Beginning 1 January the official formula price for Maya uses a new quality specifications for fuel oil at the US Gulf coast, which comprises 40pc of the Maya price formula to the Americas. Rather than using No6 3pc fuel oil, the new formula will use RMG fuel oil, which has a 3.5pc sulphur content and is currently trading in the spot market at around a \$1/bl premium to No6 fuel oil.

PMI — the trading arm of Mexican state-controlled Pemex — weakened the formula price adjustment, or K-factor, used in the Maya price calculation by 85?/bl in January from a discount of \$3.45/bl in December to a discount of \$4.30/bl. This was likely PMI's attempt at countering the impact on the final January price of Maya resulting from the switch to RMG fuel oil.

While formula prices are often inadequate as proxies for physical prices, the Maya price has appeared disconnected from actual US Gulf coast markets for many years. A key reason is the sour crude used for 40pc of the price formula is based on the price of West Texas Sour (WTS) crude at Midland, Texas. WTS trade volumes in the spot market have been limited — averaging about 59,000 b/d since the start of 2016. The price of the grade, which does not trade at the Gulf coast, tends to be more reflective of economics at the US Midcontinent.

With 80pc of the Maya formula price based on a crude grade that does not reflect coastal value and a new, higher-priced fuel oil, Maya could be entering into a period of volatility. Ultimately the Maya price could move further away from the reality of spot markets for heavy sour crudes at the US Gulf coast.