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Mexico Proceeds to Launch World’s Biggest Oil Hedge Program Partnering with WS Banks

Mexico has made the first strikes to introduce its annual $1 billion oil hedging project by asking banks for quotes, sources conversant in the deal said, while buying in financial oil options deals for 2020 has risen in recent days, in line with the giant trade.

A Wall Street source and a Mexican congressional source aware of the plan, both of whom refused to be recognized due to the sensitive nature of the contract, said Wednesday that banks have been submitting offers for the hedge and that Mexico had solicited these quotes.

For over a decade, Mexico’s government has paid for a hedge in a bid to guarantee its revenues for the upcoming year from oil exports by state oil firm Pemex. The series of highly anticipated oil trades is seen as the world’s prime sovereign derivatives exchange

Mexico’s 2019 sales were hedged in 2018 at an average value of $55 per barrel in an offer worth $1.23 billion on put options. Pemex separately hedges its sales, continuing the practice in 2017 for the first time in 11 years.

Meetings are notoriously secretive and limited to few participants as both sides try and secure the most effective terms in a highly aggressive deal for banks. It’s unclear when Wall Street banks began to submit proposals to Mexico.

A report came last week that Mexico was near executing the hedging plan after several sources conversant in the program stated that discussions between Wall Street banks and the finance ministry had strengthened recently.

Mexico collects a large part of its public revenues from selling Maya crude and subsequently aims to guard those sales with put options that earn it the possibility to sell oil at a specific value in the future.

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