Mexico is set to get a record payout of at least $6 billion from its oil hedges this year.
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 Group Inc., JPMorgan Chase & Co. and Citigroup Inc.
For 2015, Mexico guaranteed sales at almost $30 a barrel higher than average prices over the past year, according to data compiled by Bloomberg.
The 2015 payment, due next month, is set to surpass the record from 2009, when the Mexican government said it received $5.1 billion 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 Ltd., a London-based consulting company. “This gives Mexico breathing space.”
The hedge, which runs from Dec. 1 to Nov. 30, covered 228 million 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 program, the basket has averaged $46.61 a barrel over the period.
While in 2009, the price of the Mexican oil basket, which serves as a benchmark for the hedge, recovered through the year, this time it has weakened over time and therefore would trigger a larger payout.
“2015 could have been a much worse year for the government if they hadn’t hedged it,” said Joydeep Mukherji, managing director at Standard & Poor’s in New York. “This was a very good move from the risk-management perspective to lock in a higher price than they would have gotten just on a spot basis.”
