[eastbay]

$this->bbcode_second_pass_quote('Cashmere', 'M')exico?

Wow.

If they end up becoming a net importer in the next 2 years, long term contracts to <i>deliver</i> oil at today's prices could end up being a slaughter.

[UncoveringTruths]

What I thought was interesting is the market was using this as a sign that prices had peaked. Nevermind Mexico has peaked in production and is in decline.

Their concluding that this is a sign to sell and ignoring that Mexico is in decline. Maybe Mexico is panicking thinking that prices are going to go down and trying to insulate themselves. In my Peak Oil opinion there is no sound fundemental in this logic.

You know it is a bad idea when Phil Flynn says its a good idea.

$this->bbcode_second_pass_quote('', '"')This is a smart move," said Phil Flynn, senior market analyst at Alaron Trading in Chicago, who also thinks there's a good chance prices have peaked. "If I were an oil producer, I'd want to lock in these prices."

[Twilight]

For exports, or delivery to domestic customers too?

For exports it could make sense, assuming they have the sense to limit their commitments to delivery of small volumes no more than a year or two from now. In a few years, their production available for export will be negligible, so if prices rise, they would not lose much by sticking to the contract. But bearing in mind their collapsing production, they would have to be very careful about promising to deliver volumes they may find themselves unable to deliver. That way lies a very messy default. That said, if oil prices fall as they expect, that final trickle of exported oil could prove to be more lucrative than would otherwise be the case.

If this involves the domestic market at all...

It would certainly be an innovative tax, locking domestic consumers into paying today's high prices in tomorrow's low price world. The result would be foreign competition, and if unsuccessful, revolution.

But if tomorrow is a higher price world, it would lock PEMEX into a straight subsidy of domestic demand. This would force the rapid disintegration of the company's assets through neglect.

...there is no way to win.

[emersonbiggins]

Interesting take.

$this->bbcode_second_pass_quote('', 'O')ne analyst, speaking on background only, said he had confirmed Mexico was locking in futures contracts. He said it was being done at the behest of the Mexican government, eager to balance a long-term budget, rather than a bet by state oil company PEMEX, that prices will fall.

[UncoveringTruths]

Yep Twilight I see this as a desperation move on Pemex's part that the market is misreading. There was no mention of Mexico being passed peak within the article. They didn't anylyze the move closely enough and started selling.

[ROCKMAN]

A couple of points for discussion: Mexico’s production is dropping like a rock but they’ll likely never be importing much oil. They are net importers of product right now because they lack refining capacity. Secondly, though there production is probably dropping like a rock they’ll be selling oil for a while. Be interesting to know the volumes and dates on those contracts. And lastly, they may be signing contracts to deliver a lot of oil for a long time but I doubt there’s anything in those contracts that require it to be Mexican oil. I’m sure Hugo (Venz) would be more than glad to transfer title to some of his oil to Mexico if he can split the profit with them.

Something to ponder, eh?

[Twilight]

Something to ponder indeed.

The spread would have to cover shipping, but it is not much additional distance, I suppose. And I would imagine Venezuela's eagerness to redirect their oil from the US to China might be softened somewhat by the opportunity to make an extra buck off their adversary. Lower oil prices would not help America's trade deficit quite as much in this scenario, which is an additional irony.

Mexico needs oil export revenues to import refined products though, and whether they lock in current prices or not, declining volumes will kill them. If they make it through the next decade without a coup attempt, I will be surprised.

The devil is in the detail of course. What price, what volume, what dates, what provision for dollar weakness, who is party to the contracts, etc. I note some cheerleading in that article, I bet the response will be rather different if the Mexican government's eagerness "to balance a long-term budget" ends up being funded by the US consumer paying a premium. Not that a failed state on their border is in their interest either, but that point is unlikely to be made in that particular debate.

If this sees the light of day, it has all the makings of a slow-burning political mess to last many years.

[UncoveringTruths]

Westtexas over at the oil drum is saying that the exports from "VenMex" are down 30% combined. So Hugo has an issue with exports as well.

[Homesteader]

So lets see; Ven exports to Mexico who exports to US so the oil gets counted 2x as exports. Both countries take a profit albeit a smaller one. Chavez can still look like a tough guy by cutting off exports to the U.S. but still not be taken out by the CIA, Mexico still has enough money to run the country.

Tinfoil hat off.

[Starvid]

Venezuela is a screwed up place, which is what happens when you put commies like Chavez in charge of the economy. And Venezoelan declines could easily be attributed to the infamous "above ground factors".

Remember, the immense Orinoco extra heavy oil belt is in Venezuela. With enough tech and money time, I'm sure those depsoits could supply millions of barrels per day for a very long time. Too bad Chavez had the supermajors thrown out...

[Cashmere]

I wonder if there is any up front money in this?

If so, then you've gotta wonder if Mexico is taking money now in full awareness that they're going to default on the contract in a few years.

Take the money and correr, as it were.

Is that what the OP meant by force majeure

[lawnchair]

$this->bbcode_second_pass_quote('Cashmere', '
') If so, then you've gotta wonder if Mexico is taking money now in full awareness that they're going to default on the contract in a few years.

Take the money and correr, as it were.

Is that what the OP meant by force majeure

[Micki]

Force Majeur....one of the benefits of having your fields in a hurricane area.

Must admit havent read the article ( no time now) but what is the quantity that has been forward sold?
Is it possible that is in such a quantity that even with high depletion rate they can deliver?

[Peleg]

Lock in 500 bpd for the entirety of 2010 at $135 let's see that is.......over 20 billion dollars. Has anyone heard that Pemex is corrupt?

The market was looking for reasons to adjust, but it is not a fundamental shift until we start getting back below about $90 and stay there for quite some time. We have a long way to go. I would like to see $115 by next week. And don't think I am letting you guys off the hook. Anyone who shorted this and made a bundle, I expect an anonymous deposit of no less than.... One Miiiiillllion Dollllllars to my personal account with a note that says 'Dr. Peleg is the shiznitz.' and a Slim Pickens signed copy of 'Dr. Strangelove' delivered via certified mail.

Honk, honk!

[eastbay]

The Mexican government has it's hands full right now and is seriously short on cash... and getting shorter all the time. This is a real loud cracking of the wall if you ask me. It's desperation. The market will eventually figure this out and adjust accordingly.

[TheDude]

Mexico saying prices have peaked?

How about they sign in for negligible volumes simply to comfort the market? Some Gramm style "psychology," you know. Keep the actual volume under wraps: an oil producer resorting to opaqueness of data. They're taking cues from the best, after all. And it doesn't look they have more than a handful of years left before TSHTF, mucho grande.

[newman1979]

Pemex has released its June number today. Pemex reported crude exports to the U.S. at 1,225 m/b/d. This was down from June 07 when U.S, crude oil imports from Mexico totaled 1,527 m/b/d. For the first 6 months, imports averaged 1.227 m/b/d, down around 250,000 b/d from the first 6 months of 07. Production of crude oil in the first 6 months of this year was down around 290,000 b/d from the first 6 months of 07.

[Niagara]

$this->bbcode_second_pass_quote('newman1979', 'P')emex has released its June number today. Pemex reported crude exports to the U.S. at 1,225 m/b/d. This was down from June 07 when U.S, crude oil imports from Mexico totaled 1,527 m/b/d. For the first 6 months, imports averaged 1.227 m/b/d, down around 250,000 b/d from the first 6 months of 07. Production of crude oil in the first 6 months of this year was down around 290,000 b/d from the first 6 months of 07.

[Ache]

We should add Mexico to the U.S. Blacklist ...

[frankthetank]

Regime change! Turn those 150,000 soldiers in Iraq into the new Mexico City police force.