Should Mexico Stop Exporting Oil?

Source:

"Oil export revenue has fallen by over 50% since last year."

In May, oil production from Mexico's (previously) largest oil field Cantarell slipped below 700 kb/day. While the death of Cantarell has been much discussed since it peaked five years ago at 2.1 Mb/day, what's less recognized is that the toppling of Cantarell has absolutely shattered Mexico's effort to halt the decline of oil exports.

With Mexican domestic consumption of oil rising or flat, and overall production in serious decline, exports have fallen even more dramatically. Given that Mexico will one day not be able to export oil at all, perhaps they should take preemptive action and phase out oil exports now.

Mexico's revenues from oil sales are already crashing. While it's well known that the country hedged forward oil sales in 2008, it might behoove them to start dealing sooner with the inevitable trajectory to zero. Oil export revenue has fallen by over 50% since last year. Mexico will indeed stop exporting oil, probably no later than 2012.

How has Mexico handled the revenue shortfalls? Like most other countries in the world, they are borrowing money. In the case of the United States, where we manufacture debt and dollars, we have had to replace the loss of paper production with. . .more paper production. Now that Mexico is using paper to replace its lost oil production, I am less convinced the world will grant De Effe the same leniency granted so far to Washington.

Were Mexico to stop exporting oil now, I see several advantages:
  • The government could make a staged exit of their own choosing, thus stripping out the volatility in oil export revenues, which are going to end anyway. This would encourage planning.

  • Mexico could start facing up sooner to the need to make products with their remaining oil surplus, rather than selling the precious resource as a cheap, undervalued raw good.

  • The announcement would send a wake-up call to world oil markets, and would likely affect the crude oil futures curve, thus pulling up current prices a bit higher.
Why leave the oil export market as the UK and Indonesia did, in rather sad resignation? Better for Mexico to make its exit with a bang.

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