Mexico locking in Future Contracts

Cashmere · Light Sweet Crude Joined: Mar 27, 2008 Posts: 1971

Mexico?

Wow.

If they end up becoming a net importer in the next 2 years, long term contracts to deliver oil at today's prices could end up being a slaughter.
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Massive Human Dieoff must occur as a result of Peak Oil. Many more than half will die. It will occur everywhere, including where you live. If you fail to recognize this, then your odds of living move toward the "going to die" group.

UncoveringTruths · Intermediate Crude Joined: Nov 04, 2004 Posts: 899

I see Force Majeure in Mexico's future. Who would be dumb enough to lock in future contracts with them?
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eastbay

UncoveringTruths · Intermediate Crude Joined: Nov 04, 2004 Posts: 899

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. Very Happy

Twilight · Expert Joined: Mar 02, 2007 Posts: 3076 Location: UK

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... Shocked

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.
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emersonbiggins

Interesting take.

UncoveringTruths · Intermediate Crude Joined: Nov 04, 2004 Posts: 899

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.
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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 · Expert Joined: Mar 02, 2007 Posts: 3076 Location: UK

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.
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UncoveringTruths · Intermediate Crude Joined: Nov 04, 2004 Posts: 899

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.
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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. Very Happy

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"The era of procrastination, of half-measures, of soothing and baffling expedients, of delays, is coming to a close. In its place we are entering a period of consequences…"
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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...
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Cashmere · Light Sweet Crude Joined: Mar 27, 2008 Posts: 1971

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
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Massive Human Dieoff must occur as a result of Peak Oil. Many more than half will die. It will occur everywhere, including where you live. If you fail to recognize this, then your odds of living move toward the "going to die" group.

lawnchair · Intermediate Crude Joined: Oct 20, 2004 Posts: 786