
Wall Street’s Largest Oil Trade (2017) - bilifuduo
https://www.bloomberg.com/news/features/2017-04-04/uncovering-the-secret-history-of-wall-street-s-largest-oil-trade
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yskchu
How interesting, I was just reading that same article yesterday!

The article is from 2017, but Mexico has been doing the same trades still
every year - for example:

[https://www.worldoil.com/news/2020/1/3/mexico-
hedges-2020-cr...](https://www.worldoil.com/news/2020/1/3/mexico-
hedges-2020-crude-oil-exports-at-49-per-barrel)

This is from this January 2020 - they hedged at $49 per barrel... just before
the coronavirus demand shock and oil price fall... another great Hacienda
hedge.

~~~
moneywoes
Pardon my ignorance but if they bought puts at $49, with the current price
they must have made a killing right?

~~~
yskchu
Yes an absolute killing, similar to the one mentioned in the article for back
in 2008 - may not be as much as back then but still a lot.

This is a case where a hedge plays out well, and the main motive for their
play is stability for their government spending. Good for the citizens of
Mexico

~~~
fgonzag
Not a killing. Only 25% of Mexico's oil production was hedged. So we're still
losing ton of money on the other 75%, since oil is one of the main revenues of
the Mexican goverment.

It's just insurance so when the prices crash the country doesn't go with it.
Since no insurance company in the world can insure even a small govt, the only
way to go for it is with financial instruments.

We rather lose a bit of money during the good times and not get wiped during
the bad times.

It also seems Hacienda is quite decent at reading the markets from the
article, I didn't know as much.

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arthurofbabylon
The real story: “Large country buys insurance on largest asset.” Not as
exciting, but more contextually accurate. As is always the case with unique or
monstrous assets, the insurance mechanisms require invention.

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westwooded
Would be useful to know the long term profitability of this annual hedge
rather than cherry picking a great year. If, hypothetically, every other year
they lost a billion, then this $5B gain doesn't seem as great.

~~~
AQuantized
It's not just about profitability, but insurance. It allows you to distribute
the losses over a much longer period of time and fix them in your budget.

~~~
ksj2114
Exactly, its a hedge. You hope you don't make a killing on the hedge!

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raincom
The context is important. Right now, Mexico doesn't want to join OPEC+
production cuts because of their hedges (long puts).

~~~
armanini_io
Exactly [https://www.bloomberg.com/news/articles/2020-04-11/the-
secre...](https://www.bloomberg.com/news/articles/2020-04-11/the-secret-
weapon-that-gives-mexico-power-in-the-oil-price-war)

------
neonate
[https://archive.md/PvlHS](https://archive.md/PvlHS)

------
nobrains
2017

~~~
neximo64
Mexico hedged at $49 this year for about 234,000 bpd, extremely relevant. Lots
of incentives (about $6bn) to both have oversupply and not cut production.

~~~
lucbocahut
Actually if it’s simply a put the profits on the hedge stand independently of
what they actually produce. They could lift the hedge at any moment or take
the opposite bet to offset it regardless of their actual production. It seems
to me it would be more advantageous to lift part of the hedge at a profit and
then produce less since the price is way under the cost of production.

~~~
eru
Unless them producing more drives the payout on the puts up more than what
they pay for production (minus world prices).

Oh, and of course, this is all politics. They are not just maximizing profits,
but they also have to worry about the optics of firing redundant workers, if
they stop production.

