Latin America Advisor

Jorge León, energy economist at BP: “Mexico’s hedging program has been characterized as the world’s largest financial oil deal. It is common practice for Mexico to hedge and, in fact, Mexico earned billions of dollars from the hedge in 2009, 2015 and 2016 after oil prices dropped significantly, locking in above-market prices. The interesting aspect of this year’s hedging is the price at which the program was locked. There are several factors in the oil market this year that point toward upward price pressure. From the supply point of view, in 2020 it is expected that non-OPEC supply will grow by more than two million barrels per day (bpd). However, U.S. tight oil is facing headwinds due to investor pressure, and it could underperform. Easing of trade tensions, in line with the recent ‘phase one’ deal between United States and China, and global economic recovery would further support oil demand growth. Moreover, increasing geopolitical risk in the Middle East could arguably add a premium to oil prices in 2020. But, more importantly, in the last three years, the OPEC+ countries have…”