First, the good news: Mexico’s annual oil hedge — a kind of insurance policy the government takes out every year to protect its state finances against price falls — raised US $2.38 billion last year.

The bad news: oil revenues, still an important contribution to state coffers, crashed nearly 40%.

The worse news: despite Mexico’s big bet on Pemex, production and refinery output remained under pressure.

Gabriel Yorio, deputy finance minister, said the hedge payout “served to compensate for 80% of the fall in oil income that we suffered” amid the Covid-19 pandemic, which caused oil prices to plummet.

On Friday, he signaled that the government would continue hedging. It is the fourth time that the operation, one of the biggest trades in derivatives markets, has paid out to the government since the annual hedge began two decades ago.

In the past, the government has spent about $1 billion on the policy but has not divulged full details of last year’s operation.

But the hedge aside, how did oil income fare last year? A painful decline of 38.7% to just under 606 billion pesos ($30 billion), versus 956 billion in 2019.

President López Obrador has made a major bet on state oil company Pemex and is building a new refinery — even as the U.S. and Europe make ambitious bets on turning their economies carbon neutral by 2050. Even General Motors announced last week that it would phase out petrol and diesel cars by 2035.

The president is widely believed to be laying the foundations to roll back the 2013 energy reform in order to give priority to Pemex and the state electricity company, CFE.

Although Pemex requires significant amounts of government aid — amounting to at least 1.4 points of GDP a year — it says it delivered nearly 13 pesos to the state in duties and taxes for every peso the federal government invested in it last year.

Pemex publishes its 2020 results on February 26, but the outlook remains challenging.

Oil production last year, including partners, dropped nearly 1.1% to average 1.66 million barrels per day from 1.68 million in 2019 according to company figures.

However, Pemex’s own sums do not appear to add up. In a presentation to investors last month, Pemex said production, including with partners, averaged 1.7 million bpd in 2020, an increase of 0.1%, and would have been 1.73 million if Mexico had not agreed to cuts in line with Opec and other producing nations earlier last year.

Nevertheless, this year’s target — a 14% rise to 1.94 million — looks like an impossible leap.

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