The "Hacienda Hedge" (Mexico does it each year)
Posted: Tue Oct 17, 2023 5:36 pm
Bloomberg: Mexico has been conducting its annual oil-
export hedging program, one of the crude market’s largest such
undertakings, according to people with knowledge of the
transactions.
The hedging process — in which Mexico buys put options that
allow it to sell crude at a pre-determined price — is likely
close to completion or already over, according to the people,
including those involved in the deals in the past. The Latin
American country has been targeting price levels of about $80 a
barrel, two of the people said.
The program has become increasingly guarded in recent years
as the country tries to block the market from front-running the
trades, and the nation has even branded the hedge a state
secret. The players involved in the deal have also changed, with
banks seeing a smaller slice of the business compared to oil
majors, traders said.
The finance ministry didn’t immediately respond to requests
for comment.
The so-called Hacienda hedge has historically been among
the largest in the oil market, valued at about $1 billion.
However, Mexico has sought to cut down its exports as part of a
strategy by the nationalist government of Andres Manuel Lopez
Obrador to reach self-sufficiency in the domestic fuels market.
Signs of the hedging process first appeared in August, when
a monthslong decline in volatility suddenly stopped, according
to data compiled by Bloomberg. Volatility has since steadily
ticked higher, though that move has also been fueled by a period
of oil-market turbulence that has seen prices quickly bounce
between roughly $85 and $100 a barrel.
Last year, Mexico locked in an oil-hedge program for 2023
that protected the country’s revenue if prices for its crude
decline below $68.70 per barrel, Deputy Finance Minister Gabriel
Yorio said at the time.
export hedging program, one of the crude market’s largest such
undertakings, according to people with knowledge of the
transactions.
The hedging process — in which Mexico buys put options that
allow it to sell crude at a pre-determined price — is likely
close to completion or already over, according to the people,
including those involved in the deals in the past. The Latin
American country has been targeting price levels of about $80 a
barrel, two of the people said.
The program has become increasingly guarded in recent years
as the country tries to block the market from front-running the
trades, and the nation has even branded the hedge a state
secret. The players involved in the deal have also changed, with
banks seeing a smaller slice of the business compared to oil
majors, traders said.
The finance ministry didn’t immediately respond to requests
for comment.
The so-called Hacienda hedge has historically been among
the largest in the oil market, valued at about $1 billion.
However, Mexico has sought to cut down its exports as part of a
strategy by the nationalist government of Andres Manuel Lopez
Obrador to reach self-sufficiency in the domestic fuels market.
Signs of the hedging process first appeared in August, when
a monthslong decline in volatility suddenly stopped, according
to data compiled by Bloomberg. Volatility has since steadily
ticked higher, though that move has also been fueled by a period
of oil-market turbulence that has seen prices quickly bounce
between roughly $85 and $100 a barrel.
Last year, Mexico locked in an oil-hedge program for 2023
that protected the country’s revenue if prices for its crude
decline below $68.70 per barrel, Deputy Finance Minister Gabriel
Yorio said at the time.