End To Mexico Oil Monopoly Will Bolster Boom In North American Crude

By Lorne Matalon
December 17, 2013

The move by Mexico’s Congress to open the country’s state-owned Petroleos Mexicanos (Pemex) to foreign investment and technology is expected to translate into a windfall for the United States oil and gas exploration sector.

But a report by Bloomberg Businessweek that cites an analysis by Citigroup says a modernized Pemex will extract from deep water reserves in the Gulf of Mexico will double Mexican production adding 2.5 million barrels per day to the world supply of crude.

Citigroup says Mexican production would represent the equivalent of adding another Nigeria to the world’s supply of crude. Bloomberg reporters Joe Carroll and Bradley Olson write:

“That boom would bolster supply from wells in the United States and Canada that Exxon Mobil predicts will vault North American production ahead of every OPEC member except Saudi Arabia within two years.“

A report by the pro-business, conservative American Enterprise Institute says financial management at Pemex will be more efficient.

The report claims the reform quarterbacked by Mexican President Enrique Peña Nieto will reduce the amount of revenue that Pemex funnels into the government’s budget from more than 80 percent of Pemex’s revenues to no more than 4.7 percent.

A swelling in the production of Mexican crude will fatten the glut of stocks worldwide, which analysts contacted by the Fronteras Desk say will lower the price of crude.

On Dec. 12, Exxon Mobil presented an energy outlook at the Center for Strategic and International Studies in Washington, D.C. Exxon's Vice President for Corporate Strategic Planning William Colton said the Mexican energy reform represents a win for the Mexican people and consumers worldwide.

On Dec. 13, the per-barrel price of West Texas Intermediate crude, the benchmark price for domestically produced crude oil, closed at $96.60, down from its spring high of $110 per barrel.

Although it is difficult to predict prices, several analysts suggest the current price will dip in 2014. It will be several years before Mexico production is ramped up.

But those analysts contacted by the Fronteras Desk say the inclusion of Mexican oil once Pemex reforms are implemented could represent downward pressure on prices of crude in the three signatories to the North American Free Trade Act: Canada, Mexico and the United States.