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Mexico Accelerated Global Oil Slump Through Derivative Deals

  • 'Hedging program was under-appreciated negative for prices'
  • Banks acting on behalf of Mexico had to sell futures to cover
Updated on

When oil collapsed to a six-year low this month, weak demand from China and extra barrels from Iran and Saudi Arabia were marked as the prime suspects. Another country, less central to global energy markets, had a big part to play: Mexico.

The Latin American nation didn’t affect physical oil flows -- instead, its role was financial. Every year, Mexico locks in the price of oil for the following year in a series of derivatives deals. While the hedges didn’t trigger the slump, they accelerated the downward trend.