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Mexico’s Huge Oil Hedge Was Unaffected By Its Export Ban Plans

Mexico’s well-known oil hedge is showing no signs of diminishing, even in the wake of Mexico’s ambitious plans to curb oil exports.

Mexico’s hedge for 2022 crude oil production, in fact, was similar in size as it has been in previous years, Bloomberg reported.

This, even as Mexico’s President Andres Manuel Lopez Obrador plans to halt all crude oil exports as it looks to improve its self-sufficiency by making more crude oil available for its own needs.

According to an anonymous Bloomberg source, Mexico’s oil hedge for 2022 exports is now complete, at a cost of around $1 billion—similar to the $1.2 billion average cost in previous years. Another Bloomberg source said that the number of barrels hedged—between 200 million and 300 million barrels—has not changed for 2022.

Under this hedging program, Mexico buys put options from Wall Street investment banks to sell hundreds of millions of barrels of oil. With these put options, Mexico is granted the right—but not the obligation—to sell its oil at a predetermined price for the upcoming year.

For some years, Mexico has done exceedingly well with its oil hedge program—years such as 2015 and 2016 when oil prices tanked as the contracted upfront price for oil ended up being much higher than the market price.

Mexico’s oil hedge program is the largest oil hedge in the world. It is also a major revenue source for Mexico, accounting for 4% of Mexico’s GDP.

According to Bloomberg, some traders had thought that Mexico’s oil hedge would be smaller this year, as the country looks to stop exporting oil next year. But the market is still skeptical that Mexico will be able to achieve this lofty goal.


By Julianne Geiger for Oilprice.com

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