Mexico’s oil hedge to be pricier, but government likely doing it anyway

Mexico will have to pay more for less coverage under its giant oil revenue insurance policy for 2021, but will likely go ahead anyway to avoid further damaging its financial standing with international investors, sources said.

The finance ministry’s billion-dollar oil hedge is the world’s largest. It has been a pillar of the budget for more than two decades for Mexico, which pumps about 1.7 million barrels per day of crude.

The policy ensures Mexico can sell oil at a predetermined price, guaranteeing a portion of revenues crucial for the state budget – no matter what happens in the global oil market.

Many countries dependent on oil revenues face massive budget shortfalls due to collapsing prices and demand during the coronavirus pandemic, yet Mexico’s insurance policy is expected to deliver a $6 billion payout this year – its largest ever.