Falling Peso and Oil Prices Plague Mexico’s Prospects

Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

Cushing, OK WTI Spot Price FOB (Dollars per Barrel)

Source: Thomson Retuers, EIA

The falling global price of oil is having a material impact on fiscal budgets with regard to fossil fuel-reliant economies. Being a key oil exporter to the United States, Mexico is on the brink of opening foreign investment in the energy sector, planning auctions in 2015. Meanwhile, large-scale energy companies, plush with cash, are considering decreasing activity in oil exploration and possibly production. Exxon Mobil Corporation had US$ 42.5 billion in capital spending for 2013. Exxon’s capital spending in 2014 till the end of October has been US$ 28 billion. Houston-based ConocoPhillips indicated in late October, they will spend less than US$ 16 billion in 2015. Essentially, a falling fossil fuel price environment will limit capital spending by large oil giants. This would stymie private energy capital investment into Mexico. To compound the issue of falling oil prices, OPEC isn’t looking to cut production, and some oil economists believe OPEC is attempting to squeeze out higher cost competition over time.

BlackRock is the biggest money manager holder of peso bonds due 2024.

New Era of Energy

In December, the Mexican government approved constitutional amendments to permit private companies to invest in Mexican energy resources. Oil companies such as Statoil, Royal Dutch Shell, BP and Chevron are already operating in the Gulf, near Mexican boundaries. Furthermore, Petróleos Mexicanos (PEMEX) doesn’t have the technical capabilities, nor excess capital to access offshore oil and onshore shale.

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