World’s Largest Oil Hedge Is Complete

October 16, 2017
With the MXN Peso breaking $19, we’ve reached a point that the “experts” did not predict until next year, 2018.

In another very big bet on a forward-look, the Mexican Government just made the biggest bet ever for 2018, as

“The World’s Largest Oil Hedge Is Complete”

locking in 330 million of barrels of 2018 Mexican oil at $46 a barrel, guaranteeing a stable level of $15 billion in US dollar** revenues for the Mexican Gob’s 2018 budget.

**Notice that since the hedge contracts were negotiated in US Dollars (just like in the past) … even if the Mexican Peso falls … the Mexican Gob. still collects it’s oil revenues in US dollars, which softens the blows when the MXN peso weakens vs the US Dollar.

Historical Context: the Mexican Gob. has made some really shrewd oil hedging contracts in the past, as they locked-in $76 a barrel oil when the price fell to $50 a barrel (saddling 7 big banks, NY + Deutsche Bank + Barclays with huge losses) … and then Mexico locked in the next round of hedging contracts at $48, as the price then fell down to $20 a bbl (again saddling big Wall Street banks with huge losses).

Which way will things go this time?

https://www.bloomberg.com/news/articles/2017-10-16/mexico-says-world-s-largest-oil-hedge-has-been-completed

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Feel free to copy while giving proper attribution: YucaLandia/Surviving Yucatan.
Steven M. Fry

Read on, MacDuff!

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2 Responses to World’s Largest Oil Hedge Is Complete

  1. norm says:

    Baring a major disruption, oil should stay around 50 USD, give or take 20%. The horizontal drilling technology has enabled the drillers to ramp up and cut back as oil prices have fluctuated. Most of the world can make money at 40 USD, not as much as they might like but if one gets greedy and pumps too much, the price falls.

    I’m seeing a few regular wells being drilled here in northeast Ohio. They are cheap to drill and many produce oil and gas for decades. The old style wells pay even at 15 usd and 2 dollar a cubic thousand gas so there is a good bit of margin even with the old technology. Here in my area, they are only drilling the gravy fields with the horizontal method.

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