Goldman
Sachs Group Inc. and JPMorgan Chase & Co. are among seven banks
that made oil trades with Mexico that allowed the government to lock in
higher prices as crude tumbled 49 percent last year.The banks, which also include Citigroup Inc., Morgan Stanley, BNP Paribas SA, Barclays Plc and HSBC Holdings Plc, were the counterparties on oil trades the Mexican government made in 2014 to hedge prices for the coming year, the Bank of Mexico said in response to a public-information request by Bloomberg.
The government, which depends on oil for about a third of total revenue, had previously said it paid $773 million for the hedges through 43 operations in international derivatives markets.
So far, the bet is paying off: Mexico’s Maya crude-oil mix has averaged $49.42 since the end of November -- well below the price of $76.40 a barrel guaranteed under the hedges. The seven banks would be on the hook to make up the price difference, according to the government.
With 228 million barrels of oil sales covered, the government’s hedges are currently worth about $6.45 billion, based on Maya prices observed since the beginning of December, and assuming that oil stays at its current level through November.
Press officials for Goldman Sachs, JPMorgan, Morgan Stanley and Citigroup, all based in New York, declined to comment on the Mexican oil hedges, as did London-based Barclays and Paris-based BNP. HSBC didn’t immediately respond to a request for comment.
Often, banks try to hedge their own commodity contracts by entering into secondary trades with different counterparties -- thus offloading much of the risk. Such moves can help to avoid losses should the bets go sour.
Public Information
Mexico disclosed the existence of its hedges in November, as falling oil prices stoked questions among investors and analysts on how the government would handle the prospect of shrinking revenue.
The Bank of Mexico, which handled the oil trades on behalf of the government, initially declined to identify the counterparties to the trades, citing the risk of “disruption to financial markets.” The information was released Tuesday after an appeal by Bloomberg.
In 2009, when oil prices plunged as a result of the global financial crisis the prior year, the government made at least $5 billion from oil hedges that cost $1.5 billion.
In an April 18 interview, Finance Minister Luis Videgaray said Mexico plans to hedge oil exports again in 2016.
“Certainly it will not be a hedge at the price we were able to get for this year’s hedge, but we’ll take what the market gives us,” Videgaray said.
Prices for Maya crude, which the state-controlled oil company pumps from the Gulf of Mexico, fell 1.5 percent Thursday to $58.05 a barrel.
Source: www.bloomberg.com