# Mexico's secret weapon



## lat19n (Aug 19, 2017)

Early Friday morning I was reading headlines in the news like 'Mexico caves and cuts oil production'. This was because the larger OPEC nations wanted everyone to cut production by 400,000 barrels/day in hopes they could cause prices to rise. (This is particularly true for the US shale industry). Late in the day I was reading headlines like 'Mexico refuses to cooperate'.

Turns out Mexico hedged its 2020 oil productions at $49 US per barrel. It took out an insurance policy to protect its economy (and Pemex). The under-writers of that policy are the largest US banks. It would seem that Mexico is unique among the OPEC+ producers in having done this. They (the others) are feeling the drop in oil prices.

Apparently Donald Trump has stepped in and has agreed to make an additional drop in US production to cover (most of) that which Mexico is (smartly) refusing to make. I'm not sure everything is a done deal - but Mexico is (at the moment anyway) coming out of this looking like the genius in the room.

Google finds many articles similar to this one. Those which allow reader comments are particularly heart-warming.

https://www.bloomberg.com/news/articles/2020-04-11/the-secret-weapon-that-gives-mexico-power-in-the-oil-price-war


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## lat19n (Aug 19, 2017)

Excuse the source...

"OPEC Reaches Historic Deal To Cut Oil Production As Mexico Wins "Mexican Standoff" With Saudis"

https://www.zerohedge.com/markets/oil-faces-unmanageable-chaos-mexico-holds-opec-negotiations-11th-hour

And - I mis-spoke earlier. OPEC was asking all producers for a 23% reduction which would have meant Mexico's share would have been 400,000. Somewhere in that article is a chart which shows what 23% means for the other producers. So - Mexico agrees to 6%.

Some of the comments are a little raunchy but one I found interesting is - keep an eye on the USD/MXN tonight... What effect will this have on the pesos ?

One last thought - I have no idea, but I'll bet Sr. Carstens had something to do with Mexico's hedging, which has been going on now for several years.


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