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The Mexican government can expect a $2.9 billion profit from the oil price hedges it set up in 2016 – marking the second consecutive year the North American country has significantly profited off of the strategy, according to the International Monetary Fund (IMF).
Last year, the country earned a record $6.4 billion from contracts brokered with large banks, including JPMorgan Chase, Goldman Sachs, and Citigroup.
The 2016 agreement, which began coverage on December 1st of last year, guaranteed Mexico profits equivalent to a $49 Brent barrel.
The $2.9 billion figure, which the IMF provided in response to questions emailed to them by Bloomberg, has yet to be confirmed by the Mexican Energy Ministry. The hedge will be completed at the end of this month, at which point the government will either validate or discredit the figure.
For over a decade, Mexico’s government has paid for a hedge every year as part of one of the world’s biggest sovereign oil derivatives trade. The profits from the strategy help Mexico City pad budgets, especially as new austerity measures make citizens increasingly restless.
“The Mexican government has done a good job at buying these put options because they have helped to smooth the transition of public finances towards lower oil prices, but it’s just breathing room,” Carlos Capistran, a Bank of America economist, told Bloomberg earlier this year. “This buys the government time to think about the best way to go about expenditure cuts.”
State-run oil giant Pemex, which finances roughly 20 percent of the federal budget, reported record low production earlier this year – meaning that the government may be leaning towards stronger budgetary restraint as the markets sustain low oil prices due to the supply glut.
By Zainab Calcuttawala for Oilprice.com
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Zainab Calcuttawala is an American journalist based in Morocco. She completed her undergraduate coursework at the University of Texas at Austin (Hook’em) and reports on…