Mexico To Net $2.9B From Oil Hedge
LONDON, Nov 24 (IFR) - Mexico is set to book a US$2.9bn gain on its 2016 oil hedging programme, marking the second year in a row that the country has netted a multi-billion dollar payout from the options-based commodity hedges, according to recent estimates by the International Monetary Fund.
In its Article IV consultation report, the IMF estimates that revenue from Mexico's derivatives positions, which represent the largest oil hedge in the world, would equate to 0.3% of 2016 GDP.
For its 2016 programme, Mexico hedged 212m barrels of Mexican Crude Oil Mix - a basket of crude oil exports including Maya and Brent. The programme comprises a series of put options that lock in a minimum export price of US$49 a barrel.
"The estimate is based on the strike price of the options, the volume hedged, and our projection for the Mexican mix oil price for 2016 of US$35.4 per barrel," said an IMF spokesperson. "The exact number will be known next month when they exercise the options."
The latest gains follow a record US$6.4bn that the country booked from 2015 hedges, struck at US$76 a barrel.
Contracts are typically negotiated between May and September ahead of the hedging year, which begins December 1. At the time the 2016 contracts were agreed, Mexican mix traded between US$40 and US$58 a barrel, data from Thomson Reuters show.
The programme proved to be well worth its US$1bn price tag as global oil prices tumbled to 12-year lows at the start of the year. After recovering from a US$22 low in January, Mexican mix continued to trade under the hedging price throughout 2016, marking a year-high of just US$46.7 in October.
The gains go some way to offsetting a steady decline in Mexico's oil revenues, hit by both shrinking reserves and tumbling prices.
According to the US Energy Information Administration, Mexico ranked as the 12th largest oil producer in 2015, down from fifth over the course of 20 years. Production has fallen from 3.3m to 2.6m barrels a day since 1996.
For 2016, the country is expected to book US$4.1bn of oil revenues, IMF data shows, down from US$4.7bn a year previously and less than half of the US$8.9bn oil income that was booked in 2012.
Mexico has upped its hedging programme for 2017 despite decreasing reliance on oil exports. The country paid Ps19bn (US$1bn) to enter into 46 separate derivatives trades with seven counterparties, locking in prices at US$42 a barrel. The programme comprises put options that set a US$38 floor while the additional US$4 is provided by the budget stabilisation fund, which set aside Ps18.2bn to protect oil export income.
With the country's exposure to oil prices set to increase as the domestic market is liberalised, the IMF has called on the country to consider expansion of the programme beyond export activity.
"The proposed early liberalisation of gasoline prices in 2017 is welcome," said the IMF in its report. "The authorities could consider expanding the oil-price hedging programme to reduce the volatility of revenue from domestic sales of oil."
The IMF estimates Mexico's oil exports at 358m barrels for 2016, down from 488m barrels in 2011. Just 279m barrels are projected for export in 2017, according to the report.
(Reporting by Helen Bartholomew)
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