Yep but probably more relevant than ever as Mexico still hedges most of it's production. That's why they have been able to hold out against the rest of OPEC+ on production cuts. They are basically guaranteed to get a much better price for their oil so cutting production probably doesn't make sense for them. So that hedge is really giving Mexico an outsized influence on global oil right now
You (and others, I know you're not alone) take a tone ("outsized") as if this is a distortion or problem that somehow needs to be fixed.
The people who hedge, were doing so because they need time to adjust their supply to demand. This is a fact of reality, and hedging is the tool that allows producers to purchase insurance against sudden changes they couldn't otherwise deal with.
Mexico or whoever, paid for their hedges, so on net it isn't some special advantage they have. It's not about preventing adjustment to demand, but about having the producers who more easily can, do so instead.
But they do have a special advantage right now simply because their hedge removes a lot of the pressure they would get right now from the low prices. They have less incentives to cut production right now because they have hedged their output for a while so they can't be pressured as much at the negotiation table. Why would they want higher prices in the short term when it will only be at their disadvantage because even a huge production cut would not drive prices above the strike price of their puts anyways. It would only favor unhedged producers.
Also, It doesn't matter if their hedge costs as much as what it earns them over the years, the advantage they have right now is still real. And while yes, hedging is a common form of insurance in the oil industry, I don't know of any other oil producing state that hedges so much of their production.
So what I meant in my comment is that the revenue stability they have right now but other oil producers don't gives them an outsized negotiating power versus a country like for example Angola, that really cannot afford to not cut production if the Saudis demand it.
Actually Mexico does a bit of a bet on these hedges and ends up in a better position than if they hadn't done them year after year with very few exceptions. They have advantages in information. Mexico's hedge is very unique and they're about the only country that does this on net advantage to themselves and hedges their entire oil output.
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.
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.
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.
Remember: producing oil costs Mexico. They can collect on the puts without producing oil.
If the oil prices drop below Mexico's production cost, whether it's useful for them to continue producing depends on the impact their have on world prices, and thus the payout for their puts.
