& Tobago


Very usefull links


News links




Dow Jones

Oil price



Views and News





Mexico's secret weapon in the oil-price war
Armando Veve for Bloomberg

Year after year, Mexico places a multi-billion-dollar bet in a deal that big banks lust after.

- Mexico's hedge strengthens its hand as negotiations drag on
- The option could hand Mexico a multi-billion dollar payout

By Javier Blas and Amy Stillman/Bloomberg

Petroleumworld 04 14 2020

As Mexico and Saudi Arabia fight over a deal to bring the oil-price war to an end, Mexico has a powerful defense: a massive Wall Street hedge shielding it from low prices.

With talks well into their third day, the Mexican sovereign oil hedge, which insures the Latin American country against low prices and is considered a state secret, is a factor that may make the country less inclined to accept the OPEC+ agreement.

For the last two decades, Mexico has bought so-called Asian style put options from a small group of investment banks and oil companies, in what's considered Wall Street's largest -- and most closely guarded -- annual oil deal.

Read more: Uncovering the Secret History of Wall Street's Largest Oil Trade

The options give Mexico the right to sell its oil at a predetermined price. They are the equivalent of an insurance policy: the country banks all gains from higher prices but enjoys the security of a minimum floor. So if oil prices remain weak or plunge even further, Mexico will still book higher prices.

The hedge isn't the only reason Mexico is holding out. But it strengthens the country's hand and makes it less desperate for a deal than countries whose budgets have been ravaged by the collapse in oil prices since the start of the year -- first because of the coronavirus and then because of the price war launched by Saudi Arabia.

The main reason driving President Andres Manuel Lopez Obrador, a left-wing populist, to resist the deal is his pledge to revive oil production via state-owned Petroleos Mexicanos. Slashing 400,000 barrels a day to comply with the OPEC+ deal, rather than the 100,000 barrels a day that Mexico has counter-offer ed to Saudi Arabia, would put on hold his ambitious plan to return Pemex to its former glory.

The hedge has shielded Mexico in every downturn over the last 20 years: it made $5.1 billion when prices crashed in 2009 during the global financial crisis, and it received $6.4 billion in 2015 and another $2.7 billion in 2016 after Saudi Arabia waged another price war.

The operation comes at a cost. In recent years, Mexico has spent about $1 billion annually buying the options.

“The insurance policy isn't cheap,” Mexican Finance Minister Arturo Herrera told broadcaster Televisa on March 10. “But it's insurance for times like now. Our fiscal budget isn't going to be hit.”

Pemex, the state-owned company, has its own separate, smaller oil hedge . This year, Pemex hedged 234,000 barrels a day at an average of $49 a barrel.

State Secret

Mexico has disclosed very few details about its insurance for 2020 after it declared the sovereign hedge a state secret . However, based on limited public information, alongside historical data about previous years, it's possible to make a rough estimate of the potential payout if prices remain low.

The government told lawmakers it has guaranteed revenues to support the assumptions for oil prices made in the country's budget -- of $49 a barrel for the Mexican oil export basket, equivalent to about $60 - $65 a barrel for Brent crude.

It locks in that revenue via two elements: the hedge, and the country's oil stabilization fund. The fund historically has only provided $2 - $5 a barrel, so it's realistic to assume that Mexico hedged at $45 a barrel at least for its crude. In the past, Mexico has hedged around 250 million barrels, equal to nearly all its net oil exports in an operation that runs from Dec. 1 to Nov. 30.

Using all those elements, a rough calculation suggests that if the Mexican oil export basket were to remain at current levels, the country would receive a multi- billion dollar payout. Since December, the Mexican oil basket has averaged $42 a barrel.

If current low prices for Mexican oil continue until the end of November, the average would drop to just above $20 a barrel, and the hedge would pay out close to $6 billion , according to Bloomberg News calculations.

Representatives of the Finance Ministry and Energy Ministry declined to comment.

— With assistance by Eric Martin, and Nacha Cattan

By Javier Blas and Amy Stillman from Bloomberg.
04 11 2020



Editor & Publisher:Elio Ohep /
Contact Email:

CopyRight © 1999-2020, Elio Ohep A. - All Rights Reserved. Legal Information

PW in Top 100 Energy Sites

CopyRight©1999-2020, Petroleumworld ™  / Elio Ohep - All rights reserved


This site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission fromPetroleumworld or the copyright owner of the material.