Mexican oil giant devastated by oil price decline
Americans tend to think of Saudi Arabia, Kuwait, and Venezuela as oil powers, but we rarely think of Mexico in those terms. Yet oil is Mexico’s top export item, despite the rapid growth of manufactured exports such as cars, currently being decried by Donald Trump. And the government-controlled oil company Pemex, which monopolizes oil exploration and production, is the largest company in the country and provides one third of the revenue of the Mexican government.
So oil matters to the Mexican government. A lot. And Pemex is in deep, deep trouble. ZeroHedge reports:
Mexico's largest, state-owned company, Petroleos Mexicanos also known as Pemex, announced not only its 13th consecutive quarterly loss amounting to $9.3 billion, 44% bigger than the previous year, as revenue tumbled by 28% to $15.8 billion, but also a gargantuan $32 billion annual loss and at the same time announced it would slash capex spending to preserve cash and optionality for a future which suddenly looks very bleak.
Pemex has been notorious for decades for its inefficiency (and, some allege, corruption). It was unable to ramp up production to take advantage of high prices, and now that prices are low, its inefficiency costs it heavy losses. The cash crisis it now faces will have a drastic effect on both capital expenditures (necessary to maintain oil production) and employment, not to mention tax revenue for Mexico. All of this would strengthen the bargaining hand that Donald Trump would have in negotiating with Mexico should he become president. It also increases the potential for economic and political turmoil in our neighbor to the south, and consequent effects on migration pressures on our border.
All in all, this is very important news for Americans to pay attention to.
Hat tip: Bryan Demko