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Oil Prices Dive On Economic Fears

Oil Prices Dive On Economic Fears

While it seemed like the…

Mexico Begins Mingling With Wall Street For 2018 Oil Price Hedge

Oil

Mexico City is making moves to secure its annual oil price hedging program, according to sources familiar with the process who spoke to Bloomberg.

A finance team has begun to ask Wall Street banks for final rates on put options that will lock in oil prices for 2018 via the New York investment community’s largest annual oil deal. The government then has the option to sell oil at the price determined in the contract, or the higher rate determined by market supply and demand.

The Mexican Finance Ministry declined to comment on the inquiries, which began late last week, sources said. The agency predicted an average oil price for local crude of $42 for 2017 and $46 for 2018. The January 2017 price for Mayan crude for the U.S. was $45.75 a barrel.

For 2017, the country’s hedging scheme has guaranteed an average barrel price of $38, though in the first five months of this year, Mexican oil sold for $44 a unit. PEMEX’s separate hedging program becomes useful when prices drop below $42 a barrel. The Mexican government made a record $6.4 billion off of its hedge in 2015, the first year of the oil price crash.

The program’s success has encouraged other countries to follow suit. Top Iraqi oil marketer Falah Al Amri suggested last month that Iraq is interested in creating an oil price hedging program that would lock in prices for future trades well in advance—just like Mexico’s existing strategy, but almost twice as large in size.

“We will not rush. This is a long process,” SOMO chief Al Amri said. “We must make sure we do not lose money. You know the Iraqi parliament, it would not accept that.”

Iraq is currently building a plan for its own program by sending officials over to countries who have successfully executed similar strategies in the past, Al Amri told reporters.

By Zainab Calcuttawala for Oilprice.com

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