Mexico says 2017 oil hedge guarantees US$42 per barrel

Mexico's Finance Ministry on Monday said it had wrapped up what traders consider the world's biggest sovereign derivatives trade, guaranteeing an average price of US$42 per barrel for crude oil exports in 2017.

Due to the government's dependence on oil income, Mexico hedges its crude every year and the deals are closely watched by the market since the trades are big enough to affect prices.

The ministry said in a statement that it had bought put options at an average price of US$38 per barrel to cover 250 million barrels of crude at a cost of US$1.03 billion, or just over 19 billion pesos.

The ministry said it began buying options on May 13 and finished on Aug. 25, adding it had set aside another 18.2 billion pesos from its budget stabilization fund to cover the remaining US$4 per barrel.

Mexico has been pledging to cut spending due to the global slump in oil prices since late 2014 and last week Standard & Poor's on Tuesday lowered the country's sovereign credit outlook to negative from stable.

In December, Mexico said it received a record US$6.284 billion from its oil hedge program to help the government offset a drop in income from crude sales by state-run Pemex.