The price of Mexico’s export crude plunged to its lowest level in 21 years on Monday as demand continues to decline due to the Covid-19 pandemic.
A barrel of Mexican crude was selling for US $10.37 at the close of trading on Monday, a 20.3% decline compared to Friday.
The price is the lowest since March 1999 and represents an 82.5%, or $49, decline compared to the highest price a barrel of Mexican crude has yielded this year.
Global oil prices have taken a significant hit in recent weeks as the coronavirus pandemic worsens. A glut of oil in the international market as large oil producers such as Saudi Arabia ramp up production has also placed strong downward pressure on prices.
A comparison conducted by the newspaper El Universal found that a liter of Mexican oil sold on Monday for one-quarter of the price of the same quantity of bottled water and 1/23 the cost of beer.
The price slump is yet another hit for the heavily indebted state oil company, whose average per barrel production cost in 2019 was $14.20, 37% higher than yesterday’s price.
According to a report by the newspaper El Economista, Pemex may be forced into closing some of its fields where the cost of oil extraction and refining is well above current prices. Producing a barrel of oil from reserves in some fields costs Pemex as much as $24.
The plunging price for Mexican crude also affects private and foreign companies that are drilling in Mexico after being let into the petroleum sector as a result of the former government’s energy reform. Some companies could seek to make use of exit clauses if they deem that their projects will not be economically viable.
To March 30, the average price of Mexican crude this year has been $40.90 per barrel but analysts at Citibanamex are now predicting that the average 2020 price will be $22.
The government’s oil hedging program will cushion some of the blow to Pemex but public finances are still expected to suffer considerably as a result of lower oil prices. In its 2020 budget, the government anticipated an average per barrel price of $49.
Gabriel Farfán, a public finance consultant and director of a Mexico City-based think tank, said that the decline in oil prices has not yet been reflected in government revenue figures because only those for January and February have been published.
“On the last day of February, there was a per barrel price of $39, which is $10 less than what was established in the  economic package. The interesting thing will be to see the quarterly report [for January, February and March],” he said.
According to data from the Finance Ministry, oil revenue in 2019 was just over 955 billion pesos (US $40.4 billion at today’s exchange rate), an amount that represented 17.7% of the government’s total income.
If the crude price continues to decline to an average of just $20 in the first five months of the year, the government’s oil revenue will decrease by 60-63%, predicted Tec. de Monterrey economist Raymundo Tenorio.
“That’s a significant reduction in government revenue. If, despite that, they want to maintain a primary surplus they will have to make a lot of cuts but I don’t see where [they can make them]” he said.