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Mexico Executes Secretive Hedge for Next Year’s Oil Exports – Bloomberg

Mexico Is Locking In Prices for 2024 Crude Exports  (Investment U)
Mexico Is Locking In Prices for 2024 Crude Exports (Investment U)

Devika Krishna Kumar and Alex Longley, Bloomberg News

EnergiesNet.com 10 18 2023

Mexico has been conducting its annual oil-export hedging program, one of the crude market’s largest such undertakings, according to people with knowledge of the transactions.

The hedging process — in which Mexico buys put options that allow it to sell crude at a pre-determined price — is likely close to completion or already over, according to the people, including those involved in the deals in the past. The Latin American country has been targeting price levels of about $80 a barrel, two of the people said. 

The program has become increasingly guarded in recent years as the country tries to block the market from front-running the trades, and the nation has even branded the hedge a state secret. The players involved in the deal have also changed, with banks seeing a smaller slice of the business compared to oil majors, traders said. 

The finance ministry didn’t immediately respond to requests for comment.

The so-called Hacienda hedge has historically been among the largest in the oil market, valued at about $1 billion. However, Mexico has sought to cut down its exports as part of a strategy by the nationalist government of Andres Manuel Lopez Obrador to reach self-sufficiency in the domestic fuels market.  

Signs of the hedging process first appeared in August, when a monthslong decline in volatility suddenly stopped, according to data compiled by Bloomberg. Volatility has since steadily ticked higher, though that move has also been fueled by a period of oil-market turbulence that has seen prices quickly bounce between roughly $85 and $100 a barrel. 

Last year, Mexico locked in an oil-hedge program for 2023 that protected the country’s revenue if prices for its crude decline below $68.70 per barrel, Deputy Finance Minister Gabriel Yorio said at the time. 

–With assistance from Max de Haldevang.

bloomberg.com 10 17 2023

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