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Mexico may change its oil hedging policy


Mexico official opens door to going naked on oil hedge

- Deputy minister said would inform public if hedge carried out
- ‘We're evaluating it,' deputy Gabriel Yorio tells press

By Nacha Cattan / Bloomberg

Petroleumworld 08 22 2019

Mexico is evaluating locking in oil prices for next year and will inform the public “if we do it,” said Deputy Finance Minister Gabriel Yorio, who appeared to leave the door open to refraining from carrying out the world's largest oil hedge.

Mexico usually buys put options from a small group of investment banks, starting as early as May, in what's considered Wall Street's largest -- and most secretive -- annual oil deal.

This year, the country decided to change the hedging formula to reflect incoming regulations on fuel oil, and in July said it had concluded that process. Since then, it hasn't stated whether it's begun the hedge or not.

“We're evaluating it. And if we succeed at doing it, or if we do it, we'll communicate that at the end,” Yorio told reporters after he was confirmed as deputy minister by lawmakers Tuesday. Asked if Mexico has had difficulties with the hedge this year, he said that “it's a markets issue that I can't discuss right now.”

His conditional phrasing is a departure from past ministry officials, who usually communicate their desire to do so, especially this late in the year. It even represents a shift from then Finance Minister Carlos Urzua, who told Bloomberg in January that Mexico planned to hedge for 2020.

In 2018, the hedge had already begun by mid-year, in 2017 Mexico took its first steps to do so in June, and in 2016 it began in June. Prior to that, the usual hedging period had been late August to late September.

West Texas Intermediate crude for October delivery was up 0.5% to $56.40 a barrel at 10:59 a.m. on the New York Mercantile Exchange, after earlier advancing by as much as 1.8%.

Mexico has spent around $1 billion annually in recent years to hedge against fluctuations in prices to prevent an impact on government revenue. It has made money at least three times since buying put options almost every year starting in 2001. That included a record payout of $6.4 billion in 2015 after oil prices crashed.

Story by Nacha Cattan from Bloomberg. / 08 21 2019


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