Oil Hits Five-Month High: Will Gasoline Prices Rise in Mexico?

This Tuesday, October 20th, oil prices surpassed $100 per barrel, with Brent crude reaching its highest level in five months, fueled by escalating tensions in the Middle East and risks to global hydrocarbon supply. The surge occurs as attacks on Saudi Arabian energy infrastructure, reports of aggressions against vessels in the Persian Gulf, and threats to strategic export routes have increased uncertainty among market participants. Consequently, oil prices now include a geopolitical risk premium that could prolong elevated prices in the coming months. For Mexico, rising crude oil costs pose a direct question for consumers, transporters, and businesses: Will gasoline prices increase? Although the country has mechanisms to cushion international price fluctuations, the evolution of

also depends on taxes, import costs, the exchange rate, and the federal government’s energy policy decisions. For now, the price containment agreement between the Mexican government and the gasoline sector aims to keep regular gasoline below 24 pesos per liter. However, international oil market behavior will remain a significant factor for public finances, logistical costs, and inflation.

Why Did Oil Prices Rise and What Risks Does the Energy Market Face?

The hydrocarbon price rebound is primarily due to deteriorating geopolitical conditions in the Middle East, a region crucial for global oil supply. When threats against production facilities or maritime routes increase, operators anticipate potential disruptions and adjust their prices even before an actual reduction in supply occurs.

During Tuesday’s trading, Brent futures advanced by $1.78, or 1.62%, to settle at $111.33 per barrel. This marked its highest quotation since May.

Meanwhile, West Texas Intermediate (WTI), the benchmark for the U.S. market, rose by $4.49, an increase of 4.33%, to reach $108.15 per barrel, its highest level since September.

The movement followed reports by Yemen’s Iran-aligned Houthis of attacks targeting Saudi energy, airport, and military objectives. Among the locations mentioned were Aramco facilities in Yanbu, the Shaybah oil field, and the airports of Riyadh and Abha. However, Saudi authorities did not immediately confirm these claims, and Reuters reported it could not independently verify them.

Adding to these events are reports of attacks on at least 18 vessels over a two-week period, according to maritime tracker Kpler. The resumption of aggressions has also heightened concerns about the security of trade routes in the Persian Gulf and the Red Sea.

In this scenario, four factors help explain the pressure on international prices:

Risk of production disruptions: Attacks on energy facilities create uncertainty about the extraction, processing, and export capacity of producing countries.
Threats to maritime routes: Restrictions or incidents in strategic corridors can delay shipments, increase transportation costs, and raise vessel insurance premiums.
Geopolitical risk premium: Buyers factor in the potential cost of a prolonged crisis into their expectations, even if supply continues to flow.
Inventory outlook: In the United States, analysts anticipated a decrease in crude oil and certain refined product inventories in the preceding week, according to a preliminary Reuters poll.

According to ING analysts, the market maintains significant support derived from geopolitical volatility. However, they cautioned that the risk premium could gradually diminish if international oil flows continue unimpeded. The problem is that there are still insufficient signals to anticipate a rapid normalization. As long as threats persist, prices could remain elevated, with consequences for economies dependent on fuels and for businesses that rely on transportation as an essential part of their operations. Furthermore, Oxford Economics forecasts Brent to average over $100 per barrel through the second quarter of 2027. This projection points to a scenario where geopolitical tensions could continue to shape the international energy market for several months.

Will Gasoline Prices Rise in Mexico Due to Higher Crude Oil Costs?

Although international oil prices have surpassed $110 per barrel, the price of regular gasoline in Mexico has a containment mechanism designed to prevent abrupt increases for consumers. The agreement between the federal government and the gasoline sector sets a reference maximum of 24 pesos per liter for this fuel. Similarly, the strategy includes keeping diesel below 27 pesos per liter. However, it’s important to distinguish between an agreed-upon reference price and an absolute guarantee against any market circumstances. The evolution of international costs, the validity of commitments, and fiscal measures will determine how effective containment proves if oil remains expensive for an extended period.

In this regard, here are some elements that explain how the higher crude oil costs could be passed on to the Mexican market:

Regular gasoline price agreement: The 24 pesos per liter cap aims to contain the cost of the most consumed fuel. Its effectiveness depends on the continuity and application of the agreement with market participants.
IEPS incentives: The federal government can adjust fiscal incentives for the Special Tax on Production and Services (IEPS) to cushion international variations. When the incentive increases, some of the pressure can be absorbed through lower revenue per liter.
Import and distribution costs: International oil prices alone do not determine the final gasoline price. Refined fuel quotes, transportation, storage, logistics, and marketing margins also influence the final price.
Exchange rate: International hydrocarbon transactions are primarily conducted in U.S. dollars. Therefore, a depreciation of the peso against the U.S. dollar can increase costs in Mexican currency, even if the international fuel price stops rising.

In Mexico, the combination of these factors will be decisive. Expensive oil increases pressure on supply costs, but it doesn’t mean the price at service stations must immediately increase by the same proportion. It is also necessary to consider that the behavior of Brent and WTI is not automatically transferred to gasoline prices. The fuel market responds to specific refined product quotes, in addition to local supply and demand conditions. Therefore, while the price agreement acts as a buffer for consumers, sustaining it during a period of elevated oil prices could require fiscal adjustments or additional energy policy decisions. If the price increase is prolonged, the challenge will be to balance the protection of purchasing power with the cost these measures might represent for public finances.

Expensive Oil: How Will It Impact Businesses and Inflation in Mexico?

Beyond the prices motorists see at gas stations, rising oil costs can affect various productive activities. For Mexican businesses, the primary concern extends beyond fuel to the possibility of increased operational costs and reduced profit margins. Land transportation, logistics, aviation, and some manufacturing activities are particularly sensitive to energy price variations. When fuels become more expensive, companies must decide whether to absorb the increase, renegotiate contracts, or pass some of the costs on to their customers.

Key potential effects include:

Transportation and logistics: A sustained increase in diesel prices can raise the cost of moving goods between production centers, warehouses, ports, and points of sale. This is significant for national supply chains and foreign trade.
Manufacturing: Companies with energy-intensive processes could face higher production expenses, especially if raw material and transportation costs also rise.
Trade and consumption: If higher logistics costs are passed on to final prices, some products could become more expensive. The effect will depend on companies’ ability to absorb increases and on competitive conditions.
Inflation: Fuels can exert direct pressure on specific prices and indirect pressure on a wide variety of goods and services. A persistent rise could complicate efforts to keep inflation under control.

Analysts at UBS Financial Services have indicated that rising energy costs pose a risk to inflation, in a context where demand pressures and supply concerns also exist. If energy prices remain high, monetary authorities might maintain a more restrictive stance than anticipated. In Mexico, an environment of high international interest rates can influence financial conditions, credit costs, and investment decisions. In the business sphere, this means an oil shock could extend beyond the energy sector. The cost of financing inventories, acquiring machinery, transporting products, and maintaining operations could be affected by a combination of inflation and less favorable credit conditions.