Mexico in the Age of Low Oil Prices
In this collection, experts discuss the impact of low oil prices on Mexico.
Oil markets are known for their volatility, especially when it comes to major exogenous shocks. The Arab-Israeli wars, the Gulf Wars, 9/11, the great recession of 2008-9 all brought about major changes to global pricing, and the oil industry’s investment response to these shifts has resulted in longer-term pricing trends upwards or downwards in response to over- or under-supply.
In recent weeks we have seen a particularly brutal drop in oil prices as markets were hit by the twin factors of over-supply as a result of a price war caused by a breakdown of cooperation among OPEC nations, and the implosion of global oil demand as a result of the recession caused by COVID-19.
As we publish these expert pieces on the impact of low oil prices on Mexico, analysts are predicting that oil prices may soon hit single figures; most producers around the world will not be able to get oil out the ground at a cost to make that profitable. Mexico itself has a lifting cost between $14-16/barrel, and the last month has seen the Mexican Crude Basket Mix price for drop from $61 to only $13.
These are critical times for the Mexican oil industry, the government, and society. As the COVID-19 pandemic begins to hit Mexico’s society and economy, the government’s capacity to respond will be limited by its revenue from oil. At the same time, the AMLO administration’s effective suspension of the 2013 energy reform and its focus on restoring PEMEX to its former glory must now be called into question as it struggles to finance the NOC. PEMEX’s troubles have begun to weigh heavily on the government’s own debt rating: on March 26, 2020 S&P downgraded Mexico to BBB from BBB+ citing PEMEX’s “contingent liabilities”.
In this collection of reaction pieces, four experts discuss the impact of low oil prices on government energy policy, on PEMEX, on the private oil companies, and on fuel pricing in Mexico. Although only a snapshot in time of the oil price crisis, each of the authors has put forward thoughts on the long-term impacts. I encourage you to read all four pieces.
-Duncan Wood, Director, Mexico Institute
Lourdes Melgar, Ph.D.
The Mexico Institute seeks to improve understanding, communication, and cooperation between Mexico and the United States by promoting original research, encouraging public discussion, and proposing policy options for enhancing the bilateral relationship. A binational Advisory Board, chaired by Luis Téllez and Earl Anthony Wayne, oversees the work of the Mexico Institute. Read more