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Gold/Mining/Energy : Strictly: Drilling and oil-field services -- Ignore unavailable to you. Want to Upgrade?

To: SJS who wrote (33254)	12/21/1998 10:20:00 AM
From: SargeK	Read Replies (1) \| Respond to of 95453

SUPPLY SIDE: MEXICO CITY, Dec 18 (Reuters) - Mexico wouldn't hesitate to cut its oil exports further to prop up prices at 25-year lows, so long as other producers follow suit and the price recovery justifies the move, government officials and oil analysts say. Unlike cuts by other oil producers, Mexico's 200,000 barrel per day (bpd) reduction in oil exports hardly drew a peep domestically. The oil union and opposition legislators backed the move. Energy Minister Luis Tellez has defended his unprecedented cooperation earlier this year with Saudi Arabia and Venezuela to cut oil supply as essential to keeping his government's oil revenue from sinking even further. Prices for Mexico's oil mix have already fallen to about half what they were a year ago. Earlier this month, Mexico's oil price hit a 25-year low of an average $6.95 per barrel. On Friday, Mexico's crude traded at a price similar to Thursday's close of $7.40 per barrel. Tellez has pledged to take measures to bring Mexico's average 1999 oil price to $9.25 per barrel, the reference level in the government's budget. That price corresponds to about $13 per barrel for benchmark IPE Brent, analysts say. "Certainly, we are going to work together to stabilize the markets and...look to establish oil prices around the price that we need for our budget and we are not going to hold back from taking the actions needed," Tellez told Mexican media while in Madrid Thursday for a meeting with his Saudi and Venezuelan counterparts. Adrian Lajous, chief of Mexican oil monopoly Petroleos Mexicanos or Pemex, also has said he is open to more cuts. Yet Mexico will not act alone, he has said, but push for concerted action with other producers. Energy Ministry sources add that further oil export cuts must be justified by a higher price, to compensate for lost export sales. Still, Mexico cannot afford to sit by passively while prices sink, analysts say. "Unfortunately, there are a lot of political issues, but the economic, logical outcome has to be further cuts," said Ken Miller, senior principal with Houston energy consultants Purvin & Gertz. "The problem is an oversupply of crude. Period." Mexico's oil income accounts for a third of government spending, already cut to the bone. After trimming spending by some $4 billion in 1998, when oil prices sank to 25-year lows, the government is approaching 1999 strapped for cash as key presidential elections, scheduled for 2000, are in sight. "Hydrocarbon producers should act to revert the recent price behavior," Lajous said, while in Madrid. "They should do it to protect income that is so needed in the short term and to develop projects that will determine medium-term supply." As the sole producer of Mexican oil, Pemex and the government can single-handedly decide at what level to set exports, analysts note. Pemex's approximately 100,000 workers under contract have not criticized the exports reduction, saying they do not complain so long as jobs are safe. "We have no opposition. We are part of the production, not the sales. It means the same to us," oil union spokesman Victor Garcia Solis told Reuters. ((Mexico City newsroom +525 728-7903,