• 2 minutes U.S. Presidential Elections Status - Electoral Votes
  • 5 minutes “Cushing Oil Inventories Are Soaring Again” By Tsvetana Paraskova
  • 7 minutes United States LNG Exports Reach Third Place
  • 20 mins Joe Biden's Presidency
  • 26 mins Biden suspends oil and gas drilling on Federal Lands for 60 days for review.
  • 2 hours So Is COVID a Media Hoax or Not?
  • 1 min China sends warplanes thru Taiwan airspace. Joe's reponse . . . .
  • 28 mins a In 2020, we produced and delivered half a million cars.
  • 1 min The World Economic Forum & Davos - Setting the agenda on fossil fuels, global regulations, etc.
  • 6 hours Parler’s New Partner Has Ties to the Russian Government
  • 8 hours Thanks to food countersanctiona after 2014 Russia become net exporter of food
  • 4 hours GENERAL NORMAN SCHWARZKOPF: The Third Tour
  • 1 hour JACK MA versus Xi Jinping
  • 4 hours Minerals, Mining and Industrial Ecology
  • 17 hours Did I Miss Something?
  • 21 hours The Debate Starts : Remake Republican Party vs. Third Party
Oil Majors Are Eyeing A Suriname Offshore Boom

Oil Majors Are Eyeing A Suriname Offshore Boom

Suriname is quickly becoming a…

Oil Rallies Despite Growing Demand Concerns

Oil Rallies Despite Growing Demand Concerns

Oil prices rebounded on Tuesday…

Mexico’s Secret Sauce For The World’s Largest Oil Hedge Almost Ready

Mexico’s billion-dollar oil hedge to protect next year’s revenues against oil price volatility will soon be made official, a finance ministry official said on Friday, according to Reuters, kicking off another year of trying to guess where oil prices are headed in 2020.

The oil market is a volatile one, but Mexico’s track record for profiting from its Hacienda hedge is thought to be better than most. 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.

Last year, Mexico spent $1.23 billion to protect its 2019 revenues, locking in a fixed price of $55 per barrel. In 2015 and 2016 when oil prices tanked, Mexico did well, profiting billions of dollars from oil sales that it would otherwise not have received by negotiating up front pricing that turned out to be significantly higher than the actual market price. Mexico keeps the details of its oil hedge a complete mystery, maximizing its leverage in order to maximize these profits.

The investment banks that get a piece of the action likely do a lot of handwringing in breathless anticipation of a deal with such an enormous scale. These investment banks have included the likes of Citi, JPMorgan, and Goldman Sachs, and in more recent years, Shell and BP have participated in the hedge too, in a chess game that pits Mexico against Big Oil to see who will come out on top.

The deals—made across multiple investment banks—are large enough that a wrong play can eat away a sizable portion of even the biggest of bottom lines.

By Julianne Geiger for Oilprice.com

More Top Reads From Oilprice.com:



Join the discussion | Back to homepage



Leave a comment

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News