Good for Mexico

From the FT:

Mexico hedges almost all of its oil exports for the coming year

By Javier Blas in London and Adam Thomson in Mexico City

Published: November 11 2008 02:00 | Last updated: November 11 2008 02:00

Mexico is taking steps to protect itself from the oil price remaining below $70 a barrel in the clearest sign yet of the concerns of producer countries at the impact of the global economic slowdown on their revenues.

The world's sixth biggest oil producer hedged almost all of next's year oil exports at prices ranging from $70 to $100 at a cost of about $1.5bn (£961m) through derivatives contracts, according to bankers familiar with the deal.

The cover is far higher than the country - which relies on oil for up to 40 per cent of government revenue - usually seeks. Last year, Mexico hedged 20-30 per cent of its exports.

Mexico's finance ministry yesterday declined to comment but said in its latest quarterly report that its oil income stabilisation fund spent about $1.5bn on "financial investments, as part of the measures taken for risk management".

Oil prices hit an all-time high of $147.27 a barrel in July but have since fallen to less than $65 as the global economy cools. In London yesterday, oil ended the session up $1.73 at $59.08 a barrel.

Tomas Lajous, a strategist at UBS in Mexico City, said the trades appeared to have occurred in late August and early September. "The hedge is very good news . . . a presumed cost of some $1.5bn is immaterial relative to risks," he said.