International Finance
Oil & Gas

Mexico to introduce world’s largest oil hedge programme

Delay in this year’s hedge was because of increased volatility and changing prices in Mexico’s flagship Maya crude

Mexico has initiated its first move to launch the world’s largest oil hedge programme. The media said that many banks have been submitting offers for the hedge. Also, Mexico has requested those banks for quotes. 

Mexico’s government has received an approval to hedge its oil production for the coming year. “They are in the final stages of the hedge,” an undisclosed source told the media in regard to the negotiations. 

The reason for doing so is to ensure that revenue generated from oil exports by Pemex is protected against price fluctuations for next year. Pemex is the state-owned oil company. 

Pemex hedges its own oil sales, according to media reports. It appears that Mexico purchases nearly $1 billion worth of financial positions to secure its revenue generated from oil sales against price fluctuations.

Although the hedge is scheduled to start soon — how much will be hedged and at what price is still unknown. Typically, the oil hedige is a multibillion dollar deal ranging between 200 million and 300 million barrels. 

The media said that the country is planning to modify the pricing for its flagship Maya crude. It is known to be a significant benchmark for heavy sour crude oils in the Gulf coast market. 

Last year, the country’s 2019 oil pricing was hedged at $55 per barrel in a $1.23 billion deal on put options. The hedge began mid-year in 2018. Prior to 2016, it was during late August to late September, the media reports said. 

Delay in this year’s hedge was mainly because of increased volatility and changing prices in Maya crude. 

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