Page 6 - LatAmOil Week 04 2020

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Mexico may be downplaying Maya crude in latest hedging programme
MEXICO’S government has indicated it wants to limit public disclosures about its annual oil hedging programme, which usually involves the purchase of about $1bn worth of crude futures options, in order to discourage specula- tion and defend itself against price fluctuations. But details about the most recent hedge may be starting to leak out.
Last week, a Wall Street source with knowl- edge of the matter told Reuters that Mexican authorities had bought significantly more Brent crude futures than usual. Brent had accounted for around two thirds of all the options that Mexico purchased, the source said.
This represents a departure from previous years, as the hedging programme typically includes a larger number of contracts for Maya, Mexico’s main export grade of crude. Reuters’ source said, though, that Mexican authorities had hedged a much lower volume of Maya this year.
The source did not say why Mexico might have made this change. But market sources told the news agency that the shift towards Brent offered some advantages. Since Brent is more widely and actively traded than Maya, they explained, Mexico will be able to secure lower quotes for its trades. It will also be able to avoid encouraging speculators, since its trades will attract less notice, they said.
Even so, this strategy does have a downside. Other market observers pointed out that the shift away from Maya and towards Brent was likely to make the hedging programme less reflective of Mexico’s actual export mix.
According to Ryan Dusek, director at the Houston-based consulting firm Opportune, the decision to downplay Maya in favour of Brent couldbackfirebymakingthehedge“worthless.” He told Reuters: “I would expect a divergence of prices over the long term. This pressure on Maya could move prices down faster than its hedge. This would cause a loss on the physical sale of Maya and minimal to possibly no benefit of the hedge.”
Victor Gomez, a former official in the Mexi- can Finance Ministry, said that the government’s concern about the consequences of revealing information on the oil hedging programme were valid. Banks have learned how to spot signs that the hedge deal is in the works, and they often respond by raising the premiums that Mexico must pay, he said.
“This is part of Mexico’s strategy to leave banks and oil majors in the dark about what theyarebuyingandhowmuchtheyarepaying,” said Gomez, who was involved in the annual oil hedge until 2018.
Dusek and Gomez were speaking shortly after Bloomberg reported that the Mexican government had designated certain information about its annual crude oil hedging programme as state secrets. The Finance Ministry outlined plans to follow this course in a letter sent to the state auditing agency in February 2019, the news agency reported on January 13 after viewing official documents related to the matter.
In its letter, the ministry said it would keep key data on the hedge secret for a period of five years. ™
Maya is Mexico’s main crude export grade (Photo: Shutterstock/Victor Torres)
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w w w. N E W S B A S E . c o m Week 04 30•January•2020