Oil price drop won't impact Mexico's budget, government says

Thursday, October 23, 2014

The continued drop in oil prices will not affect Mexico's 2015 budget or plunge the country into debt, according to the finance ministry and the president of the senate's energy committee.

The price of Mexican crude has fallen US$12/b over the last month and 26% since June to below the government's US$81/b price floor – used to calculate the 2015 budget – to US$77.09/b on October 16.

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Mexico is heavily dependent on oil revenues, which make up around 35% of the country's finances and about 6% of GDP.

However, the country needs to review its oil output as the figures from the previous federal administration (2006-12) do not correspond to the real production levels, said senate energy committee president David Penchyna of the ruling PRI party.

He said the new, post-reform structure of the energy sector will prevent the country from becoming overly indebted.

Mexico is expecting a 2.1% increase in oil revenues in 2015 but the drop in price will mean revenues will be 71bn pesos (US$5.2bn) lower than in 2014, the finance ministry's undersecretary for revenues Miguel Messmacher Linartas said.

He said Mexico's expected oil revenue for 2015 is 1.22tn pesos, compared with 1.29tn this year, a 5.5% drop, based on declining oil output.

NOC Pemex expects production to close 2014 at 2.35Mb/d and 2.40Mb/d in 2015, he said. Tax revenue from production is estimated to be 124bn pesos in 2015, a 7% increase, compared to an expected 3.7% rise in GDP, he said.

The oil price fluctuations will not impact expenditure as Mexico's flexible exchange rate acts as an automatic stabilizer in the event of negative shocks from the global economy or crude prices, and while lower prices may affect revenues, higher tax income and a recovery in the energy sector will compensate for that, he added.

But opposition senator Dolores Padierna, of the left-wing PRD, said the price plummet puts the effectiveness of Mexico's energy reform into doubt, which was based on an expected US$100/b.

For his part, workers party (PT) senator Marco Antonio Blásquez called for uniform gasoline prices in line with the US, which is where Mexico imports the fuel from, as a measure to fight inflation.

In response, undersecretary Messmacher said such homologation of prices is being established as part of the transition and opening up of Mexico's energy sector, which will bring more competition in the gasoline market and lower prices.

From 2017, private firms will be able to import and sell gasoline in Mexico, putting an end to Pemex's monopoly.

BNamericas will host its 11th Southern Cone Energy Summit in Lima, Peru, on November 12-13. Click here to download the agenda.