The FINANCIAL — Mexico hedged oil exports for 2016 at an average price of $49 a barrel, down 36% from the hedge for this year as oil prices tumble and domestic production declines, according to Nasdaq.
The hedging contracts covered 212 million barrels of crude oil, the Finance Ministry said late on August 19. It cost the government about $1.1 billion, the highest sum since 2010.
The 2016 oil hedge is well below the $76.40 a barrel at which the government hedged for this year. The Mexican crude-oil benchmark is trading near $38, some 60% lower than a year ago.
Mexico, the world’s ninth-largest oil producer, uses the hedge to protect its public finances from unexpected oil shocks. The government buys options to guarantee a minimum price for its crude.
But the oil hedge will provide only limited relief for a government accustomed in recent years to oil prices near $ 100 a barrel.
About 18% of the federal budget came from oil revenue in the first half of this year. Last year, oil revenue accounted for about 30% of the budget.
Given the drop in oil revenue, accompanied by a 10% decline in oil output in the last year, Mexico’s government is preparing steep spending cuts for the 2016 budget to be presented to Congress in early September.
For this year, the government has already set $8.3 billion in spending cuts.
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