Page 4 - LatAmOil Week 16 2020

LatAmOil COMMENTARY LatAmOil
Pemex’s Akbatun Permanente platform was destroyed in a fire in 2015. The company is now facing disaster of a different kind (Photo: Twitter/@carlitosahm)
Mexico’s oil export basket joins
WTI in trading below zero
Recent events will probably force the country to cut production, despite the Energy Minister’s efforts
WHAT:
Mexico’s crude basket dropped to -$2.37 on April 20.
WHY:
Pemex and the Mexican economy are not immune to coronavirus-related disruption.
WHAT NEXT:
Despite this year’s successful hedge, the government will see oil revenues decline if output falls.
MEXICO arguably played a role in the collapse of world crude prices earlier this week, in that it helped ensure that the new OPEC++ agreement finalised on April 12 was too weak to counter- balance traders’ apprehensions about oversup- ply and inadequate shortage capacity. But it has also been caught up in the crash, as it too has seen one of its grades of crude start trading in negative territory.
On April 20, front-month futures contracts for WTI deliveries to Cushing, the main US benchmark, neared the record-low price of -$40.00. And on the very same day, spot rates for Mexico’s oil export basket closed at -$2.37. This was the lowest figure ever recorded for this commodity, and it represents a loss of 116% on the figure posted for April 17.
The decline seems to have been driven by the wider collapse of world oil markets, which have been shuddering under the multiple impact of coronavirus (COVID-19) related demand destruction, inadequate storage capacity and bearish pricing trends. But it also stemmed
from the fact that Mexico’s crude basket is based partly on Maya, the country’s flagship grade of heavy crude, and that Maya prices are in turn linked to WTI prices for delivery to Houston.
Fellow travellers
Maya was not the only Latin American grade dragged down by the fall of WTI.
Reuters reported on April 20 that other WTI-indexed crudes, including Napo and Ori- ente from Ecuador, had also dropped below zero. The US benchmark’s precipitous fall also helped bring prices for Merey, a Venezuelan grade, down to historic lows, it noted.
The news agency quoted an anonymous source involved in Latin American oil trading as
saying that prices for these grades might plunge
again, even though WTI front-month futures
did not remain in the negative range for long.
“We are seeing more rational numbers today,
but it is a matter of time before WTI June con- tractsalsocrash,”hesaid,referringtotheexpira-
tion of the May contract on April 21. 
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