Oil Hedging Could Mean $6-bn Windfall

Mexico’s oil hedging strategy could earn the country a hefty US $6-billion payout, according to an analysis by Bloomberg.

That strategy entailed locking in the price it received for oil during 2015 at $76.40 a barrel, while the average price so far, with fewer than two weeks remaining in the hedging contract, has been $46.61 per barrel.

The contract, which cost Mexico $773 million, covered 228 million barrels and runs from December 1, 2014 until the end of this month.

The strategy was effective in maximizing petroleum revenues. “This was a very good move from the risk-management perspective to lock in a higher price than they would have gotten just on a spot basis,” said Joydeep Mukherji of Standard & Poor’s in New York.

If Bloomberg’s analysis is correct, the payout would surpass the record $5.1 billion Mexico received in 2009 following the plunge in oil prices that year.

The $6 billion estimate does not include fees.

Mexico’s is one of few countries to carry out such a hedge.

Source: Bloomberg (en) -

Oil Fall Pressures Currencies

Zero Hedge writes today: Despite numerous interventions by Mexico, Russia, and Nigeria, the free-fall continues in their currencies. The Russian Ruble is the poster-child (down 40% since June alone - testing 58/USD today) but the crash in Mexico and Brazil is accelerating in the last week. Default risks are surging for all of the Oil-Producing nations with Russia topping 450bps (5Y CDS) .

The Mexican Peso this morning is 14.77 to 1 USD. Crude oil is now under $60: $57.60! (see chart)

UPDATE: Mexico vows to sell dollars to halt peso's slide

Mexico’s Powerful Energy Reforms

Mexico is poised to become Latin America’s economic star in the coming decade. The government’s recent reform of the energy sector will contribute directly to economic performance by reducing the cost of manufacturing. In the context of the North American Free Trade Agreement (NAFTA), the resulting increase in manufacturing competitiveness promises to boost Mexico’s growth substantially.
Read more at http://www.project-syndicate.org/commentary/mexico-energy-reforms-manufacturing-competitiveness-by-martin-feldstein-2014-10#dkIfK848ChfqvokI.99

Enrique Peña Nieto Wants To Privatise PEMEX

PEMEX, the Mexican oil company, is a Mexico owned monopoly authorized by Article 27 of the Constitution. As such, the U.S. Mexican Ambassador Jeffrey Davidow said that even talking about outside investment in PEMEX was “taboo.”

To hear Revolutionary Party (PRI) presidential pre-candidate talk about Pemex, leads one to conclude that PEMEX needs outside investment and the way to get that help is through privatization. Some say private investment as been reluctant to invest in PEMEX for fear that their property could be seized.

The handsome Nieto may bring the PRI back to power that's why his view is important. Nieto says "...Mexico has been 'held hostage' by it's mistaken urge to keep PEMEX nationalised and that Mexico 'can achieve more; grow more and do more through alliances with the private sector.'"

Dennis Gartman in the October 25th, 2011 Gartman Letter says,

Mr Pena Nieto has our interest. For the time in many, many years we are actually interested in owning things in Mexico.