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A Signal of Strong Short Term Demand in Oil Markets

A Signal of Strong Short Term Demand in Oil Markets

A significant development this week…

Mexico President-Elect Assures Oil Industry He Won’t Cancel Contracts

Mexico’s President-elect Andres Manuel Lopez Obrador has assured oil companies operating in the country that no oil contract will be cancelled as long as it complies with its terms, Reuters reports, citing a closed-door meeting between Obrador and industry executives.

“The president-elect told us on various occasions that they will respect contracts so long as we obviously comply with all of the contracts’ commitments,” the head of Shell’s Mexican operations, Alberto de la Fuente, told Reuters.

There had been some worry in the run up to the elections that leftist Obrador, who had not spared any harsh word about private involvement in Mexico’s oil industry, would wreak havoc on the energy reform enacted by the Pena-Nieto government and maybe kick out international oil companies.

As often happens after the elections, however, Obrador has softened his rhetoric as reality set in: Pemex simply does not have the capacity to develop Mexico’s oil and gas resources alone as evidenced by the stable decline in production that Pena-Nieto tried to reverse with the sweeping energy reform that also featured a liberalization of prices at the pump—a fact that may well have contributed to Obrador’s win in July.

Obrador had said that his government will review all existing oil contracts to see if there was any evidence of corruption. The president-elect also vowed to give more powers to the hands of Pemex after the outgoing government removed it from its monopoly pedestal.

Related: U.S. Will Not Release Oil From SPR To Offset Iran Sanctions

Last month, Reuters reported that it had seen a draft of Obrador’s new energy policy guidelines, which featured an indefinite suspension of new oil tenders and a proposal to give state-held oil firm Pemex the power to pick its own partners for joint ventures without holding tenders.

More recently, however, Obrador said the suspension of the oil tenders would only last until all oil contracts—more than a hundred—are reviewed. There is an oil tender scheduled for next February, and local industry insiders have been confident it will take place. The fact that Mexico was forced to start importing crude for the first time in decades will serve to support this confidence.

By Irina Slav for Oilprice.com

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  • Anthony on September 28 2018 said:
    Of 110 farm-out contracts only 33 have resulted in actual investment in MX and only 3 current wells operating. Looks like Obrador is requiring companies to hold up their end of the deal by actually producing bbls. This will hurt some start-ups and JV's involving corrupt govt officials including former presidents who never intended to invest yet reap financial rewards.
  • Jose on September 28 2018 said:
    He wants his kickbacks, Mexican style.

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