Wednesday, December 09, 2009

Mexico's oil hedge

Mexico Has Hedged Oil for 2010 at $57 a Barrel (Update2) -
"Mexico spent $1.172 billion to buy oil hedges for 2010, covering a possible revenue shortfall if production falls for the sixth straight year and prices don’t recover from about a five-year low.

Mexico purchased put options that give it the option, not the obligation, to sell its oil for $57 a barrel next year, the Finance Ministry said in an e-mail statement today.

“We want this as an insurance policy...,"

I am sure this article will yield many interesting class discussions. Note the timing of the hedge but at least they had the right side and were buying options.

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