The World’s Largest Oil Hedge Is More Secretive Than Ever

Mexico has started hedging its 2022 oil production in the world’s most notorious and largest oil hedge, Bloomberg has reported, citing unnamed sources in the know.

The source told Bloomberg that the Mexican government was buying put options at prices between $60 and $65 per barrel.

The Mexico oil hedge is the most secretive hedging transaction in the oil world and is followed closely by banks as a sort of weathervane for oil prices. A handful of these are directly involved in the hedge: Mexico buys put options on oil from them and from several oil supermajors in a series of about 50 transactions. 

Last year, Mexico made some $3.5 billion from the Hacienda Hedge, and Bloomberg estimated that the price at which the government bought put options must have ranged between $45 and $47 a barrel.

Earlier this year, the government overhauled the hedge, however, seeking to protect it from traders entering deals ahead of Mexico and causing price swings on the market, Bloomberg reported at the time.

Bloomberg estimates based on government data show that Mexico has spent $15.1 billion in fees buying put options over the last two decades but has earned $16.5 billion over the course of those twenty years—with the biggest profits mostly in 2015 and 2016 when oil prices tanked.

This year, Mexico is not the only one hedging its oil production. Bloomberg reports that Malaysia’s Petronas had hedged part of its output earlier this year and was recently back to the options market to hedge more.

Mexico is one of the largest oil producers globally, but it has been struggling with a prolonged period of declining production, mostly due to natural depletion and a lack of new discoveries. State-owned major Pemex is currently the most indebted oil company in the world.

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