OREANDA-NEWS. US products exports to Mexico are set to continue to climb in the coming year as Mexican production dwindles further and liberalization of the country's market continues.

Refined products exports from the US to Mexico soared for much of 2016, mirroring a large drop in crude processing rates at Mexican refineries. From April to September this year US gasoline and diesel exports to Mexico rose by 43.8pc and 26.3pc, respectively, to 55.2mn bl and 33.4mn bl, according to data from the Energy Information Administration (EIA).

Gasoline components flow from the US to Mexico also rose by 26.4pc to 15.77mn bl between April and September, while jet fuel movements grew by 57.2mn bl to 6.1mn bl, according to the EIA.

Increased demand for US products stems from falling domestic production in Mexico. The six refineries operated by Mexico's state-run Pemex processed just 849,000 b/d of crude in the first nine months of 2016, the lowest since 1990 and down by one-fifth compared with a year earlier.

Crude processing rates in Mexico have dropped as refining margins fell by 36pc in the third quarter to $2/bl, compared with competing refineries on the US Gulf coast that operate at average margins of above $10/bl. Unplanned refinery outages in Mexico and financial problems that have impeded downstream investment also contributed to the low processing rates.

Ongoing liberalization of Mexican markets may also spur more products imports. Mexico plans to implement complete price liberalization by 2018, meaning domestic prices there will better line up with international prices. Other companies were allowed to import fuels into Mexico beginning in April this year. But high taxes, including the special tax on production and services (IEPS) introduced at the end of last year to help offset revenue lost to the oil price drop, undermined the economics of imports for private companies.

In addition to high taxes, Mexico's lack of infrastructure - storage terminals, dock capacity and distribution centers - will be one of the biggest hurdles for US exporters. Insufficient dock capacity has prevented full cargoes from discharging in Mexico. A lack of storage capacity has also impeded much-needed cargo routes from the US Gulf coast to Yucatan and from the Bahamas to Mexico.