Magazine article SourceMex Economic News & Analysis on Mexico

Pemex Observes 62nd Anniversary amid Debate on Mexico's Leadership Role in Global Oil Markets

Magazine article SourceMex Economic News & Analysis on Mexico

Pemex Observes 62nd Anniversary amid Debate on Mexico's Leadership Role in Global Oil Markets

Article excerpt

President Ernesto Zedillo's administration celebrated the 62nd anniversary of the state-run oil company PEMEX amid growing debate on whether Mexico is properly exercising its new leadership role in the global oil market.

Mexico has gained clout in the oil market because of its joint initiatives with Saudi Arabia and Venezuela during the past two years that led oil-producing nations to reduce the supply of crude oil on the market.

The three countries launched their efforts in March 1998, when global oil prices had fallen sharply (see SourceMex, 1998-03-25). Global oil producers subsequently reduced production and exports in 1998 and again in early 1999 (see SourceMex, 1998-06-10, 1999-03-24).

The reductions contributed significantly to depleting global oil inventories, which caused prices to skyrocket by the first quarter of 2000. For Mexico, the effect of the price increase has been dramatic. Mexican crude oil was selling at an average of more than US$27 per barrel as of March 2000, triple the average price of US$9 per barrel in March 1998.

Reactions mixed to proposals to boost oil output

Concerned about the impact of high prices on the global economy, industrialized countries began to lobby Mexico and other producers to push for increasing global oil supplies. But the US, Japan, and Western European nations did not have to go to great lengths to convince the Mexican government, which shared some of their concerns.

"Prices that are too low, just like prices that are too high, have negative repercussions on world economic growth and affect our own growth," Zedillo said in a March 18 speech commemorating the PEMEX anniversary. "What interests us is having prices that can be sustained in the long term."

The administration's decision to support a production increase has received mixed reactions. The decision has been condemned by presidential candidate Cuauhtemoc Cardenas of the center-left Partido de la Revolucion Democratica (PRD).

"It seems absurd, stupid, and contrary to our national interest for the government to reject the possibility of additional revenues," Cardenas told supporters at a rally in Monterrey in early March.

"If there was nothing to spend the money on, increasing oil exports might be logical," said Cardenas, who is also representing other small parties in the July 2 presidential election. "But I've never seen anybody whose product is selling at a high price say, 'I want you to pay me less.'"

But the administration's decision received immediate support from business leaders Hector Rangel Domene of the Asociacion de Banqueros de Mexico (ABM) and Jorge Marin Santillan of the Consejo Coordinador Empresarial (CCE).

"The backlash from a US economic downturn, with higher interest rates, rebounding inflation, and a much higher cost of servicing Mexico's debt, would be worse than foregoing a possible revenue surplus," Rangel and Marin said in a joint statement.

The major oil producers have generally agreed to boost output when the existing supply-reduction agreement expires the end of March, but they have not agreed on how much to increase output. This decision is among the key topics for discussion at the upcoming meeting of the Organization of Petroleum Exporting Countries (OPEC) in Vienna March 27. Non- OPEC members such as Mexico and Norway are expected to have major input into the decision.

Once the decision to boost production is implemented, supplies could increase by between 1 million and 1.5 million barrels per day, said Energy Secretary Luis Tellez. Still, he said, the agreement to boost production should initially have little impact on prices, since the extra supplies will go toward replenishing depleted inventories.

Strong market boosts PEMEX's revenues

Meanwhile, the strong oil market sharply increased Mexico's revenues last year and is expected to contribute even more this year. …

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