Friday, November 22, 2019

Mexico, Pemex to Hedge Oil Output

September 9, 2019

Mexico and Pemex are hedging their oil output to protect oil income against projected low prices in 2020. (Photo © Adobe Stock / mmmx)

The Mexican government has said in its 2020 budget proposal that it will maintain a strategy of hedging its oil output against lower prices.

Mexico’s state oil company Pemex will also continue a similar but separate hedging program. Mexico’s roughly $1 billion annual oil hedge is considered the world’s largest oil trade and the government has made the first moves to launch its program by asking banks for quotes.

The budget document said the government had “fiscal shock absorbers” to protect against volatility that could affect public finances. This includes “a strategy of oil hedges contracted both by Pemex and the federal government to cover oil income against reductions compared to the price”, the government stated. The Pemex hedge is much smaller than that of the Mexican Finance Ministry.

Although the price the Mexican government and Wall Street banks have agreed on for the2020 hedge is unknown, the budget sets a target price of $49 per barrel for its crude export revenue estimates. The budget blueprint estimates crude exports for 2020 at1.13 million bpd, almost 2 percent higher than 2019 levels.

Reporting by Ana Isabel Martinez and Stephanie Eschenbacher

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