Monday, March 31, 2025

Oil price rebounds with 22% gain, though likely to fall again

The price of Mexico’s export crude rebounded on Thursday after falling to its lowest level in 18 years on Wednesday.

The price for a barrel of Mexican crude closed at US $17.70 on Thursday, a 21.7% increase over the $14.54 closing price on Wednesday. The gain fell $1.08 short of recovering all of the losses the price incurred on Wednesday.

The two main benchmark prices for oil, the West Texas Intermediate (WTI) and the Brent Crude prices, also recovered on Thursday after falling on Wednesday. The WTI price was up 22.1% at $24.88 per barrel while the Brent price rose 13.3% to $28.19 per barrel.

However, many analysts say that the rise in prices will not last. The spike on Thursday came in response to monetary policy changes by central banks that are seeking to support economies rattled by the growing spread of coronavirus.

As the pandemic inevitably worsens, demand for petroleum will continue to fall, causing oil prices to drop in response.

Thursday’s closing price for Mexican crude is less than one-third of the $55 price a barrel was selling for in the middle of January.

Mexico does have an oil price hedging program in place but if prices remain low for an extended period, the impact on Pemex and the federal government, which collects taxes from the state oil company, will likely be significant.

The government said in January that the Finance Ministry had locked in a $49 per barrel price for oil worth a total of $1.37 billion, and Pemex CEO Octavio Romero said the same month that the company had already contracted a “small portion” of its 2020 hedge.

However, Romero didn’t reveal the price Pemex had locked in or the number of barrels of oil to which it would apply.

The state company announced last week that it had received its first payment from the hedging program but didn’t say how much it got. It also said that it has $7.85 billion available in credit lines and will continue to pay debts to suppliers.

The state-run company has debt in excess of $100 billion and some analysts believe that its credit rating could take a hit due to the low global oil prices.

Source: Milenio (sp) 

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