January 10, 2019 / 8:40 PM / 2 months ago

UPDATE 2-Mexico spends $1.2 bln on 2019 oil hedge, locks in $55 per barrel

(Adds details on budget stabilization fund)

By Stefanie Eschenbacher

MEXICO CITY, Jan 10 (Reuters) - Mexico completed its 2019 oil hedge, the world’s largest sovereign derivatives trade, guaranteeing an average price of $55 per barrel for Mexican crude for the year after buying $1.23 billion in put options, the finance ministry said on Thursday.

Mexico hedges its crude every year and deals are closely watched by the market since the trades are big enough to affect prices. The program is a longstanding part of Mexico’s strategy for safeguarding oil revenues from market volatility.

The government said it spent 23.49 billion pesos on put options, a financial instrument that sets an agreed price to sell assets around a specified date. It did not say how many barrels of crude were covered by the trade.

“With these actions we protect that budget ... against drops in prices of oil below this level,” the finance ministry said in a statement.

The ministry said that between the put options and resources in a budget stabilization fund, they could assure an average price of $55 per barrel for Mexican crude exports during 2019.

The fund had 246.7 billion pesos ($12.90 billion) at the end of the third quarter last year, according to the 2019 budget proposal.

For more than a decade, Mexico’s government has paid for a hedge in a bid to guarantee its revenues from oil exports by state company Pemex. The program is seen as the world’s top sovereign derivatives trade. ($1 = 19.1200 Mexican pesos) (Reporting by Stefanie Eschenbacher; editing by Frank Jack Daniel and Sonya Hepinstall)

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