Mexico in the Age of Low Oil Prices
In this collection, experts discuss the impact of low oil prices on Mexico.
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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鈥檚 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鈥檚 society and economy, the government鈥檚 capacity to respond will be limited by its revenue from oil. At the same time, the AMLO administration鈥檚 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鈥檚 troubles have begun to weigh heavily on the government鈥檚 own debt rating: on March 26, 2020 S&P downgraded Mexico to BBB from BBB+ citing PEMEX鈥檚 鈥渃ontingent liabilities鈥.
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
Contributors
Jeremy Martin
Lourdes Melgar, Ph.D.
Research Affiliate, MIT; Non-Resident Fellow, Baker Institute
John Padilla
David Shields
Duncan Wood
Mexico Institute
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 T茅llez and Earl Anthony Wayne, oversees the work of the Mexico Institute.聽 Read more
