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Mexico is currently working to lock in crude oil prices for export for next year as part of its lucrative oil hedging program.
Mexico’s oil hedging program—referred to as the Hacienda Hedge—is fairly universally thought of as quite remarkable—profitable more often than not—and in some years when oil prices fall sharply, extremely profitable.
The idea behind Mexico’s well-to-do billion-dollar Hacienda Hedge allows Mexico to buy put options in the Fall of each year for the coming year that give Mexico the option to sell its oil at a specific locked-in price. The options do not require Mexico to sell at that price—just the option to. Mexico has spent more than $1 billion each year in fees on these options, bargaining with banks, Big Oil companies, and oil traders to negotiate favorable pricing for that $1+ billion.
The details of the Hacienda Hedge are not shared publicly, with the negotiations carried out in deep secret. Last year, Mexico began its hedge talks around this same time.
The hedging program is designed to cover and protect Mexico’s budget, and in recent years, it became even more secretive when it classified details about the hedge that were previously made public, including the overall cost of the hedge and the strike price for the put options. It no longer even discloses the names of the counterparties.
In 2021, Mexico shook things up when it announced it would look for quotes year round in a move designed to give Mexico more leverage at the negotiating table. This way, the banks and traders are unsure whether Mexico is seeking quotes or buying.
Last year around this time, an anonymous Bloomberg source close to the matter said that its 2023 hedging program would protect oil revenues if oil fell below $75 per barrel.
By Julianne Geiger for Oilprice.com
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Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group.