Mexico in line for more than €5.5bn oil price windfall

Mexico is set to get a record payout of at least $6bn (€5.6bn) from its oil hedges this year, according to data compiled by Bloomberg.

The Latin American country locks in oil sales as a shield against price declines through a series of financial deals with banks including Goldman Sachs, JPMorgan and Citigroup. For 2015, Mexico guaranteed sales at almost $30 a barrel higher than average prices over the past year.

The 2015 payment, due next month, is set to surpass the record from 2009, when the Mexican government said it received $5.1bn after prices plunged with the global financial crisis.

The country’s crude has fallen by almost half over the hedging period so far this year. Crude sales historically cover about a third of the government budget.

“The windfall is huge,” said Amrita Sen, chief oil analyst at Energy Aspects, a London-based consulting company. “This gives Mexico breathing space.”

The hedge covered 228m barrels at $76.40 each for the Mexican oil basket, according to government documents and statements.

With less than two weeks to the end of the programme, the basket has averaged $46.61 a barrel over the period. The difference would result in a payment of around $6.8bn, not including fees.

The final figure could vary from the Bloomberg estimate as some details of the hedge are not public and oil prices will change over the next two weeks. The Mexican oil basket fell last week to $33.28 a barrel — its lowest since December 2008.

Mexico’s Finance Ministry didn’t respond to calls and emails seeking comment on the hedges and deputy finance minister Fernando Aportela declined to provide an estimate on Friday of how much money the Latin American nation would get from the programme. The government will receive the proceeds in the first half of December, he told reporters in Mexico City.

The payout would dwarf the profitability of the biggest commodities trading houses and oil hedge funds. The Mexican government paid $773m in 2014 to lock in prices, the government said last year.

The country’s annual hedge, which is closely watched by the oil market and often moves prices, is probably the largest undertaken by a national government, the chief economist for the nation’s Finance Ministry said in 2012. Few other commodity-rich countries have followed suit with similar hedging programs.

Ecuador locked in oil sales in 1993 and, after losses triggered a political storm, never tried it again. Colombia, Algeria and even Texas have experimented with locking in prices.

Meanwhile, Venezuela’s oil minister, Eulogio Del Pino has warned that oil prices may drop to as low as the mid-$20s a barrel level, unless OPEC takes action to stabilise the market. Venezuela is urging the OPEC to adopt an “equilibrium price”, of around $88 a barrel

* Bloomberg