Mexico to resume annual hedging program as oil price slides -sources
NEW YORK, July 29 (Reuters) - Mexico has resumed its annual oil hedging program to lock in a price for its oil production and protect its bottom line despite benchmark prices sliding another $10 a barrel this month, three sources familiar with the deal told Reuters.
Morgan Stanley, Citigroup Inc, JPMorgan Chase & Co and Goldman Sachs Group Inc are some of the banks involved, according to a person familiar with the transactions. The banks could not be reached for comment. Bloomberg first reported the news on Wednesday.
The news comes after four sizeable puts at a 520,000-barrel tranche traded starting last Tuesday, according to data from the Depository Trust & Clearing Corp. The trades give the holder the right to sell at $48 per barrel if prices drop lower, and expire in November 2016. Each trade had a premium of $3 million, or cost $5.77 a barrel.
The identity of the buyers was not listed in the repository, but the three sources indicated the trades were part of Mexico's program. Mexico's finance ministry could not be reached for comment.
Mexico has historically relied on crude oil revenue to finance about a third of its federal budget.
Two of the sources expressed surprise at how low transacted volumes have been so far. But with crude prices swooning, causing out-of-the-money put option premiums to spike, producers may want to hedge smaller volumes because it is less expensive.
Last month, two large put option trades sparked market speculation that the program had started. The trades were at a 470,000 barrel tranche each, for a $53 a barrel strike price and a $2 million premium, or $4.26 a barrel.
The hedging program, one of the most widely watched operations by a nation in commodities markets, comes after the recent tumble at the start of July pushed Brent and the U.S. crude benchmark near six-year lows.
The annual deals typically occur around August and September each year, but are said to have started earlier this year.
In November, Mexico's finance ministry said that it had finished its 2015 oil hedging program, paying some 40 percent more to protect its revenue.
It purchased put options between September and November to guarantee an average oil price of $76.40 per barrel for 2015 exports, it added. (Reporting By Catherine Ngai and Jessica Resnick Ault, additional reporting by David Alire Garcia in Mexico; Editing by Matthew Lewis)
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