Page 6 - LatAmOil Week 43 2022

LatAmOil MEXICO LatAmOil

Yorio: Mexican government’s draft budget

sees oil prices at $65-70 per barrel in 2023

MEXICO’S Deputy Finance Minister Gabriel about the programme, and the government now
Yorio said earlier this week that the govern- classifies certain information about the hedge as
ment had drafted its budget for next year on the a state secret.
assumption that world crude oil prices would
average $65-70 per barrel. Constant quest for quotes
This range is significantly below current Yorio disclosed further details about the Finance
world oil prices, as Brent and WTI benchmark Ministry’s efforts to obscure information about
crudes began the week trading at nearly $93 per the hedge to Reuters last week, saying in an
barrel and above $84 per barrel respectively, interview that it had started asking the banks
while Mexico’s Maya crude ended last week and oil majors that participate in the risk reduc-
above $76 per barrel. However, Yorio said dur- tion programme to provide quotes all year
ing a meeting with Mexican legislators that this round rather than all at once.
figure had been chosen because global oil prices “It is being reviewed constantly,” he told the
were showing clear signs of coming down from news agency. “We are seeking quotes constantly.
the highs they reached earlier this year. Our goal is to cover and protect the budget.”
Yorio did not give an exact figure for the base By seeking out this information on a constant
price of oil in the government’s proposed budget basis, he added, Mexico City is better able to
for 2023 at the meeting, which was broadcast avoid revealing exactly when it intends to launch
online. Reuters said, though, that his mention of the hedge. “[You] can’t know if we are seeking
the $65-70 range was in line with other reports quotes or buying … [We] are getting quotes on
that put the figure at $68.7 per barrel. a recurring basis precisely so that counterparties
The news agency also quoted the deputy can’t read us,” he explained.
finance minister as saying that the Mexican The deputy minister also dismissed recent
government’s draft budget allocated MXP392bn media reports speculating that Mexico City had
($19.8bn) for fuel price subsidies in 2023. He did recently started working to put together a hedg-
not provide any comparative figures but stated ing programme that set the threshold price of
that Mexico City anticipated that demand for $75 per barrel for oil. According to Reuters, he
gasoline and other petroleum products would pointed out that this figure was above the base
drop next year in response to a possible slow- price of next year’s draft budget and emphasised
down in the economy. that he had no intention of disclosing any fur-
Determining the base price for crude oil is ther information.
a key part of the budgeting process in Mexico. “My objective is to cover the budget and
The country’s government relies heavily on the protect it,” he was quoted as saying by the news
income it earns from exports of petroleum, agency. “In the current context of geopoliti-
which currently amount to around 1.7mn bar- cal tension, oil price volatility is very high and
rels per day (bpd). therefore the volatility of the premiums associ-
In turn, the base price in the budget helps set ated with the hedge is very high.” ™
the terms of the government’s annual risk-re-
duction programme, otherwise known as the
Hacienda Hedge. The hedging programme
usually sees the Mexican government purchas-
ing around $1bn worth of put options from Wall
Street banks and oil majors in order to guard
against unexpected fluctuations in crude prices.
Mexico executed its first oil hedge deal in
1991 and began carrying out annual hedges
regularly in 2001. Within the last two decades, it
has spent more than $16bn on the transaction,
which allows it to guard against unexpected dips
in oil prices. As of last year, the hedge had paid
out on four occasions, allowing the country to
earn $16.5bn back.
Several years ago, Mexico City began keep-
ing some of the details of its annual hedging
arrangements confidential. Since then, Mexican
officials have become less and less forthcoming Yorio says fuel demand may sink in 2023 (Photo: Twitter/@GabrielYorio)

P6 www. NEWSBASE .com Week 43 26•October•2022