January 10, 2019 / 8:43 PM / 6 months ago

Mexico hedges 2019 oil at $55 per barrel, spends $1.2 billion on options

FILE PHOTO: A general view of a gas facility of Pemex in Reynosa, September 18, 2012. REUTERS/Daniel Becerril

MEXICO CITY (Reuters) - Mexico completed its 2019 oil hedge, the world’s largest sovereign derivatives trade, at an average of $55 per barrel, placing the equivalent of $1.23 billion in put options, the finance ministry said on Thursday.

Mexico hedges its crude every year and deals are closely watched by the market since the trades are big enough to affect prices. The program is a longstanding part of Mexico’s strategy for safeguarding oil revenues from market volatility.

The government said it spent 23.49 billion pesos on put options, a financial instrument that sets an agreed price to sell assets around a specified date. It did not say how many barrels of crude were covered by the trade.

“With these actions we protect that budget ... against drops in prices of oil below this level,” the finance ministry said in a statement. As in previous years, the hedge was also backed by Mexico’s budget stabilization fund.

“As a result of these complementary strategies, a price of $55 per barrel was assured for the Mexican export blend in 2019,” the ministry said.

For more than a decade, Mexico’s government has paid for a hedge in a bid to guarantee its revenues from oil exports by state company Pemex. The program is seen as the world’s top sovereign derivatives trade.

Reporting by Stefanie Eschenbacher; editing by Frank Jack Daniel and Grant McCool

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