Mexico is set to receive a windfall of US$2.9 billion from its oil hedges for 2016, according to data from an International Monetary Fund report. A second year of plummeting crude prices mean the put option the country invested in will pay off again.

Image sourced from El Financiero http://www.elfinanciero.com.mx/economia/mexico-ganara-mil-900-mdd-con-cobertura-de-crudo-fmi.html

Image sourced from El Financiero

In the past decade, Mexico has averaged almost US$1 billion a year purchasing put options with banks, agreements which allow the country to guarantee a minimum price of oil in a high-volatility environment. This year, the country could receive as much as 0.3 percent of its GDP of roughly MX$19.4 trillion (US$950 billion) via the options, the IMF report said.

The amount, however, is lower than the US$6.3 billion the country received thanks to the hedge program in 2015, according to the Ministry of Finance website.

The country has been taking the protective measure against fluctuating crude prices for over a decade. This is the first time Mexico will gain from the scheme twice in a row, as reported by Bloomberg.

Mexico spent US$1.09 billion in 2015 on put options, which fixed 2016’s oil exports at US$49 a barrel, Bloomberg added. Mexico’s “Maya” crude mix averaged a selling price of US$33.37 over the past year until September, according to PEMEX data.

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References

http://www.imf.org/en/News/Articles/2016/11/22/NA112216Strong-Policies-Helping-Mexico-Confront-External-Risks

http://www.gob.mx/shcp/prensa/comunicado-de-prensa-147-2015

http://www.pemex.com/ri/Publicaciones/Indicadores%20Petroleros/epreciopromedio_esp.pdf

https://www.bloomberg.com/news/articles/2016-11-22/mexico-set-to-receive-2-9-billion-oil-hedge-windfall-imf-says

https://www.ft.com/content/9299c0e4-b0f9-11e6-a37c-f4a01f1b0fa1

Image: http://www.elfinanciero.com.mx/economia/mexico-ganara-mil-900-mdd-con-cobertura-de-crudo-fmi.html

 
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