Mexico to tread lightly as crude output restrictions ease

Petroleum News Alaska Staff

Worried that its economy will be hurt if oil prices go too far up or down, Mexico will tread lightly as producers move toward easing crude output restrictions, officials said. The restrictions, agreed upon last year in a successful bid to raise oil prices, expire at the end of March. Once they do, producers are likely to increase output to counter low world inventories and high prices, Mexican Energy Minister Luis Tellez said Feb. 15. Mexico has an idea of how much more crude should be put on the market, he said, but he declined to name a figure. Tellez was scheduled to meet his counterparts from Venezuela and Saudi Arabia on March 2.

But the government’s reliance on oil for nearly one-third of its income cannot easily be brushed aside. Low prices led to more than $3 billion being slashed from the 1998 budget. Last year, the federal government collected $1.4 billion more than it had expected, with state oil monopoly Petroleos Mexicanos selling its crude at an average price of $15.62 a barrel.

Andrew Cunagin of Salomon Smith Barney said lower oil prices as the year progresses are more likely to hit Mexico on the trade side. Wider deficits could pressure the Mexican currency, Cunagin said. “Oil is supporting the trade numbers.” Mexico’s petroleum exports grew 39 percent in 1999 to $9.92 billion, helping to limit the overall trade deficit to $5.36 billion from $7.91 billion in 1998.

“Obviously, they are pleased with high prices,” Cunagin said.