Last updated: September 8, 2009 3:29 am

Mexico to enjoy $8bn windfall from oil bet

 
Agustin Carstens©Reuters

Agustín Carstens, Mexican finance minister

Mexico is set to earn a record $8bn from financial contracts it bought last summer as insurance against weaker energy demand and lower oil prices this year, the Financial Times has learnt.

The oil producer’s astute risk management will make it the envy of Opec, the oil cartel whose members are struggling with a collapse in prices from last year’s peak of $147 a barrel and who are due to meet tomorrow to discuss output levels.

It has also given Agustín Carstens, the country’s finance minister and architect of the hedging strategy, a Wall Street-sized reputation for financial wizardry.

Traders joked on Monday that Mr Carstens was probably 2009’s “most successful, but worst paid, oil manager”. But he will be hard pushed to repeat his success. Mexico is unlikely to secure the same favourable protection for next year.

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Oil traders said the world’s sixth-largest oil exporter had started to hedge a small portion of its oil revenues for next year after it successfully locked in an average price of $70 a barrel for all its oil exports this year. The fresh deals were securing a lower price floor for 2010 of about $50-$55, they said.

The Mexican windfall will be scrutinised by other producers suffering a drop in oil revenues, and particularly by Opec’s members. The cartel is set to earn revenues of $555bn this year, down 40 per cent from 2008, according to US estimates.

Edward Morse, chief economist at LCM Commodities in New York, said Mexico’s accomplishment was “idiosyncratic to last year’s oil market”, when record oil prices of $150 a barrel allowed the country to buy cheap insurance for 2009. The success, he added, was unlikely to be copied by other countries.

Mexican officials have told lawmakers they expect to earn about 100bn-110bn pesos ($7.5bn-$8.2bn) from the hedge as the prices the country has achieved for its oil exports so far this year have averaged less than $50 a barrel. The officials warned against expecting a similar gain next year.

Mr Carstens took the gamble of hedging all Mexico’s oil exports for 2009 at a cost of $1.5bn with Goldman Sachs and Barclays Capital. The banks in turn offloaded their exposure, people familiar with the programme said.

The bet was based on the belief prices would drop because of the impact of the financial crisis on energy demand.

Separately, Mexican President Felipe Calderon replaced Jesus Reyes Heroles, director-general of Pemex, as part of a mid-term cabinet reshuffle. Declining production and exports at the state oil monopoly is putting a severe strain on the government’s finances.

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