Friday, November 14, 2014

AMID OIL PLUNGE, CONFLICT, MEXICO HEDGES ITS BETS

Nov. 13 (Bloomberg) -- Mexico spent $773 million to buy oil hedges for 2015 in case oil futures don’t rebound after touching a 4-year low, Finance Minister Luis Videgaray said.
Mexico purchased put options that give it the right, not the obligation, to sell 228 million barrels of oil for an average of $76.40 a barrel next year, Videgaray told reporters in Mexico City today. While the government’s 2015 revenue plan estimates $79 a barrel on its crude exports, the country could cover the difference with its oil rainy-day fund, he said.
With the options contracts and the oil fund, Mexico is “100 percent protected,” Videgaray said.
Mexico traditionally hedges most of its expected crude exports for the following year. The Finance Ministry estimates Mexico will export 1.09 million barrels a day in 2015, or 398 million barrels for the year. The government has allocated 7.94 billion pesos ($584 million) to complement the hedges if needed.
These instruments will allow the government to meet the objective of the revenue portion of the public budget, Marco Oviedo, chief Mexico economist at Barclay’s Plc., said in a research note today. “This confirms that Mexico’s public finances will not be exposed to lower oil prices during 2015,” Oviedo said.
WTI for December delivery declined $2.97, or 3.9 percent, to $74.21 a barrel on the New York Mercantile Exchange, the lowest settlement since Sept. 21, 2010.
The government bought the hedges from seven financial companies through 43 contracts. Videgaray declined to identify the counterparties. Mexico won’t exercise oil hedges for this year, he said.
State-owned Petroleos Mexicanos, which has posted losses eight straight quarters as crude output tumbles, funds about a third of the federal budget.

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