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Mexico place $700 million oil bet to lock in the gains for next year

Susana Gonzalez/Bloomberg

Government doubled oil hedge spending compared to a year ago. Mexican officials requested quotes from banks starting in May.

By Daniela Guzman

Petroleumworld 08 01 2018

Mexico spent about 13.8 billion pesos ($740 million) in the first half of 2018 from its budget stabilization fund, which historically has been used exclusively to hedge forward oil prices, according to a quarterly report.

The chief economist at Mexico's Finance Ministry, Alejandrina Salcedo, told reporters on Tuesday that "normally" the reason for money to leave that fund is the purchasing of oil hedges, but she declined to comment on specifics on the country's oil hedging program.

The hedges, often known as Wall Street's largest oil trade , aren't publicized to prevent hedge funds and trading houses from front-running the Mexican government's orders.

The rise in the past few months of oil prices may have proven tempting for Mexico, prompting them to lock in the gains for next year. Bloomberg News reported in May that the country had been asking counterparties for quotes to hedge crude exports. The government spent 6.3 billion pesos on hedges in the year-earlier period.

The team of incoming President Andres Manuel Lopez Obrador has said that the oil hedging program by the Finance Ministry and the state-owned oil company known as Pemex, will continue during his administration.

Mexico's purchase of derivatives to hedge oil prices typically accelerates in the third quarter, with total expenses last year reaching 24.1 billion pesos.

With assistance by Javier Blas, Rafael Gayol, and Eric Martin


Story by Daniela Guzman from Bloomberg. 07 31 2018

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