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With cost of oil hedge rising, Mexico Is proceeding cautiously

July 24, 2020/ 08:26

Mexico. Mexico will check prices closely before plunging into its annual oil hedge for next year because an erratic crude market is making the program more expensive, Finance Minister Arturo Herrera said.

“It’s an extraordinarily volatile market,” Herrera said in a video interview on Wednesday. “Buying hedges in an extraordinarily volatile market is expensive, and so we need to be cautious.”

Oil futures in New York plunged to an unprecedented minus $40 a barrel in April, after an OPEC+ deal broke down just as virus-related lockdowns destroyed demand for crude. Prices have since rebounded to about $40.

For the past two decades, Mexico has locked in its oil revenue via put options it buys from a small group of investment banks and oil companies in what’s considered Wall Street’s largest -- and most closely guarded -- annual oil deal.

It’s so secretive, Herrera declined to give any more specifics about the deal, but his comment pointed to the possibility that Mexico has yet to begin buying put options for 2021,told Bloomberg.

“We never say when we start, we never say when we finish and with prices where they are now, you have to be checking something before starting,” Herrera said.

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