Mexico to hedge oil output

09 Sep 2019

In its 2020 budget proposal, the Mexican government has revealed that Mexico will stick to its strategy of hedging oil output against lower prices, with state oil company Pemex set to maintain a similar hedging program. 

Reuters reports that as it stands, the world’s largest oil trade is considered to be the Mexican Finance Ministry’s $1 billion annual oil hedge. It was Mexico that first took the initiative to implement the program, by approaching banks for quotations. 

According to the budget document, the government said it had "fiscal shock absorbers" to safeguard against inconsistency, which could leave an impact on public finances. These include "a strategy of oil hedges contracted both by Pemex and the federal government to cover oil income against reductions compared to the price". 

The Finance Ministry’s hedge is a lot greater than the one carried out by Pemex.  

The budget has aimed for the figure of $49 per barrel for its crude export revenue estimates, despite there not being any additional information regarding the price agreement between the government and Wall Street banks. 

According to the budget blueprint, the following year’s crude exports are forecast to amount to 1.13 million bpd – almost 2% more than in 2019. 

Additionally, as Reuters reports, the finance ministry’s 2019 hedge calculations were based on $55 per barrel for Mexican crude.