Mexico Oil Production to Fall 4.9%, Drop Through 2012 (Update3)
By Andres R. Martinez and Carlos Manuel Rodriguez
Aug. 11 (Bloomberg) -- Mexico’s oil production may fall 4.9 percent next year as the nation faces the greatest “fiscal shock” in 30 years, Finance Minister Agustin Carstens told a Senate committee today.
Lower output is costing the nation as much as 300 billion pesos ($23.05 billion) in lost sales annually and may create a deficit in the federal budget next year, Carstens said. Oil revenue funded 38 percent of the government’s budget last year.
Mexico’s economy, the second-largest in Latin America, may have shrunk as much as 10.4 percent in the second quarter as remittances, foreign direct investment and exports fell, according to a government report last month. Standard & Poor’s in May placed Mexico’s credit rating on negative outlook as the government struggles to narrow its fiscal deficit.
“We are going to face a huge hurdle to pass a budget that maintains the stimulus with less government revenue,” Carstens said.
State-owned oil company Petroleos Mexicanos on July 30 cut its production forecast to 2.65 million barrels a day for this year, from an earlier estimate of as much as 2.8 million. Carstens said Pemex may pump 2.5 million barrels a day next year and output would keep falling through 2012.
Output is slumping as production at Cantarell, the company’s largest field, drops at a rate twice as fast as forecast by Pemex. Last year, production slumped at the fastest rate since 1942.
Signs of Recovery
The Mexican economy is seeing “clear signs” of recovery in the second half of the year as stimulus programs kicked in, Carstens said. The recovery remains dependent on the U.S., which buys 80 percent of Mexican exports, and will likely be slower than expected, he said.
Mexico is the third-largest supplier of crude to the U.S., after Canada and Saudi Arabia.
The Mexican government expects the average price of oil to be $53.80 a barrel next year, Carstens said in his presentation. He referred to the price for the Mexican export mix of crude, which closed yesterday at $66.92 a barrel.
Hedges, which the government bought to cover lower output and prices, may pay out 100 billion pesos, Carstens said.
Oil crude traded at $69.50 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange. Futures have fallen more than 50 percent since a high of $147.27 a barrel on July 11, 2008.
-- With assistance by Adriana Lopez Caraveo in Mexico City. Editors: Robin Saponar, Adriana Arai.
To contact the reporter on this story: Andres R. Martinez in Mexico City at amartinez28@bloomberg.net;
Last Updated: August 11, 2009 15:59 EDT
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