A major recurring event in the oil market is the Mexican state’s annual Hacienda Hedge, through which the nation seeks to insure its revenues from oil exports in the year ahead.

On Tuesday, the Mexican Secretariat of the Treasury and Public Credit, Secretaría de Hacienda y Crédito Público, initiated its 2023 hedging program, reports Bloomberg News citing unnamed sources. They also indicate that the Mexican state has secured a price of USD 75 per barrel of crude in the first half of 2023.

In comparison, the current price of US benchmark West Texas Intermediate ranges around USD 90 per barrel.

Hacienda Hedge is the biggest sovereign oil hedge in the world. Historically, Mexico has been quite proficient at insuring oil exports. In 2020, when prices dropped during the pandemic, Mexico generated approx. USD 2.4bn in earnings from hedging. In 2015, the state secured earnings of USD 6bn, according to Bloomberg News.

This time around, the hedge is largely executed by oil majors, though the ministry has traditionally turned to major banks. The program typically costs USD 1bn and involves 200-300 million barrels of oil.

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