Page 11 - LatAmOil Week 25

LatAmOil MEXICO LatAmOil

Mexican government’s oil hedge

likely to cost more next year

MEXICO’S crude oil hedge, the largest deal of its this year, in light of the plunge in crude prices
kind in the world, is likely to cost more and offer and the demand destruction that resulted from
less protection next year. Even so, the govern- the coronavirus (COVID-19) pandemic.
ment will probably go ahead with it anyway in The hedge is predicted to deliver $6bn this
order to avoid inflicting further damage on the year. This would represent its largest-ever
country’s financial standing with international payout.
investors, banking and government sources told Mexico’s national oil company (NOC) Pemex
Reuters last week. is faring less well, even though it hedges a por-
This giant hedging deal has been a central tion of its own production. It posted a multi-bil-
component of the Mexican government’s budget lion-dollar loss in the first quarter of the year.
process for more than 20 years. However, mar- US-based Fitch Ratings has warned that
ket volatility and lower crude prices have raised Pemex is the “most vulnerable” among its peers
the cost of the options that Mexico normally in Latin America. It believes the company may
uses as an insurance policy against bearish oil have difficulty enduring the price slide unless it
markets. In 2021, these derivatives are likely to secures more government support and higher
be 40% more expensive than normal, market revenue from its refining business.. ™
sources said.
As a result, the hedge deal may be smaller in
scope next year. “There are lots of challenges,
and everything points to it being more difficult,”
said a Mexican source who worked on last year’s
hedge.
Meanwhile, sources inside Mexico’s Finance
Ministry sources told Reuters that the govern-
ment was looking into several different possi-
bilities. Discussions have focused on hedging a
smaller part of the country’s exports next year,
buying cheaper options or using a less expensive
strategy, they said.
The hedge deal guarantees the Latin Ameri-
can country’s ability to sell oil at a predetermined
price, meaning that the government will receive
the same level of revenues regardless of volatility
in the global oil market. It has been very valuable Mexico’s national oil concern is vulnerable to market fluctuations (Photo: Pemex)

AMLO: Mexico willing to sell gasoline to

Venezuela for “humanitarian” reasons

MEXICAN President Andres Manuel Lopez received such a request from Venezuela.
Obrador has said that his country would sell Late last year, US officials began asking most
gasoline to Venezuela for “humanitarian” rea- of Venezuela’s foreign fuel suppliers to avoid
sons if it were asked to, despite US sanctions. sending gasoline to the South American state.
“If a request were made and it was a matter of They did so to support measures designed to
humanitarian need, we would do it,” he said at a oust Nicolas Maduro, Venezuela’s socialist pres-
press conference last week. ident, from his post.
“We make our own decisions and do not Washington also imposed sanctions on the
mess with the policies of other countries,” country and its state-run oil company PdVSA
he added. He noted, though, that he had not in January 2019.

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