Oil Hedge Program of Mexico as World’s Largest Program moves to Launch

September 12, 2019 | Thursday



Oil hedging program worth $1 billion of Mexico has made its first move in preparation for its launching. Mexico asked banks for quotes, according to the sources familiar to the deal. Consistent with the giant trade, while buying in financial oil options contracts for 2020 have risen in recent days.

A Mexican congressional source and a Wall Street source familiar with the annual oil hedging program declined to be identified because of the sensitive nature of the deal, said that banks have been submitting offers to the hedge and that Mexico had requested these quotes.

To guarantee Mexico's government’s revenues for the coming oil exports by state oil company Pemex, it has paid for a hedge in a bid, for more than a decade. The world’s top sovereign derivatives trade is given to the series of highly anticipated oil trades.

Last year, Mexico’s 2019 sales were a hedge at an average price of $55 per barrel in a deal worth $1.23 billion on put options. Resuming the practice in 2017 for the first time in 11 years, Pemex separately hedges its own sale.

The respond of the Mexican finance ministry to a request of comment was not immediately given. As both sides attempt to secure the best terms in a highly competitive deal for banks, negotiations are notoriously secretive and limited to few participants. The submission of bids of Wall Street banks to Mexico is also unclear.

After several sources familiar with the program said that talks between Wall Street banks and the finance ministry have intensified recently, last week Mexico was close to executing the oil hedging program.

A Mexican source said that they are in their final stages of preparation of the hedge. Ahead of the country presenting its 2020 budget on Sunday.


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