Latin America 2023 refined products market cloudy on possible Russian supplies

Unlike the rest of the world and despite record high prices, the demand for refined products in Latin America looks to grow in 2023, but the supply remains uncertain because of new sanctions on Russia.

Russia’s war in Ukraine was at the center of Latin America’s unusual year for commodities, just like elsewhere in the world. Other more regional factors also came into play, from increased agricultural demand to poor hydropower supply to changing governments. Countries from Mexico to Argentina kept pump prices low and demand high in part through subsidies that may end.

Latin American hit record high diesel and gasoline prices in June. The region’s demand accounts for half of all US refined product exports, which has been close to 200 million barrels/month in 2022, US Energy Information Administration data shows.

S&P Global Commodity Insights analysts said overall diesel demand in Latin America rose 8% in 2022 and net imports increased 22% in 2022. They cited a rise in economic activities such as agriculture, mining, industrial production and power drive diesel consumption.

Market sources in Latin America expect demand to fall in 2023 given an expected recession in the US. But S&P Global analysts said that any US recession would not be a global recession and economies in Latin America are not greatly affected by the US economy, except for Mexico.

Demand in Latin America has remained at its highest level for the last five years and is expected to continue strong but will not grow as much for 2023, depending on the country.

“The great debate is how all those governments can carry their approach on high fuel prices,” said S&P Global analyst Felipe Perez.

Cautious approach

After the Russian invasion on Feb. 24, the global market had times where demand was low, particularly from March to July. This was a consequence of global political instability and the US-imposed sanctions on Russia. This caused Latin America to become an appealing market for Russia, with a trickle of barrels arriving.

Latin America did not sanction Russian barrels but approached their import cautiously for fear of backlash or getting blacklisted from more powerful countries like the US. But if the price of barrels discounts enough, then temptation will be huge and a Latin American country will go for it, according to Perez.

Smaller companies in Brazil took in Russian product, which caused Brazil to have an oversupply in September. The Caribbean, Ecuador, Venezuela and Cuba also take in Russian product due to their political ties with the country.

Kpler shipping data showed 14.28 million barrels of Russian clean product coming into Latin America from January through December 2022, compared to 4.56 million into the US, mostly before sanctions in March.

“We had never seen movements of Russian products in Latin America because of the distance, but the market made this happen,” said a second market source.

Kpler data already shows 1.43 million barrels of clean product expected to arrive from Russia to Latin America in January.

“The United States and Europe are really facing a tight market without the supply of Russia, which indirectly affects the Latin American market as well,” said the source.

The focus is whether Mexico will take in Russian product despite its close ties with the US. The US is the main source for Latin American imports, although it does draw from other countries, including ones that benefit from cheap Russian crude.

‘Crystal ball is still opaque’

Europe starts imposing sanctions against Russia in February 2023. The US will only have so much product to give and could prefer Europe over Latin America. This could lead Latin America to take in Russian product as a result, according to Perez.

Europe may turn to Africa and even the few Latin American exporters for supply at time, sources said, leaving the scenario unclear for 2023 if the Russian-Ukraine war is not resolved.

Source: S&P Global

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