Mexico slashes crude targets in 2021 budget

Mexico's government slashed its crude oil output forecast for the next four years, with next year's target down by 11pc from the original goal.

Mexico's state-owned Pemex expects to produce 1.86mn b/d next year, down by 11pc on the 2.1mn b/d forecast in the company's 2019 business plan, according to the 2021 draft federal budget published yesterday.

The revised output forecast is still "optimistic," analysts at BBVA said.

The 2021 budget — "adapted to the health and economic conditions caused by Covid-19" — cuts output, export and price forecasts for crude amid a broader scenario of reduced federal spending across all but a handful of projects, such as the planned 340,000 b/d Dos Bocas refinery.

Pemex's crude output reached a historic low of 1.58mn b/d in July, following five months of volatility within crude markets as the Covid-19 pandemic battered demand and spent futures contract prices spiraling temporarily into negative territory. While crude prices have crept up, they remain down by 42pc on last year and Pemex and independent operators have reduced their output and capital expenditure plans.

The government now expects Pemex to produce 2.28mn b/d of crude by 2024, down from the 2.6mn b/d forecast when President Andres Manuel Lopez Obrador took office in December 2018 pledging to rapidly reverse a 14-year decline in crude output.

The average crude export price — historically indicative of the price at which the finance ministry locks in its large annual oil hedging program in the fall — is pegged at $42/bl next year and forecast to rise to $45/bl in 2022.

In line with the government's pledge to reduce crude exports, the government expects to export 870,000 b/d next year, down by 23pc from the average 1.13mn b/d exported over the first seven months of this year.

Pemex has been allocated a budget of Ps544bn ($25.3bn) for next year, up by 4pc on this year's budget.

The majority of the budget — Ps302bn — will be invested in exploration and production activities with exploration of the Uchukil shallow-water acreage, continuing delimitation activities on last year's Quesqui discovery and production in the Ixachi onshore, gas-rich field receiving the largest budget allocations for new projects. Mature fields including Cantarell and Ku-Maloob-Zaap will receive a combined Ps69.6bn.

Amid the ongoing economic turmoil caused by Covid-19, the government reduced its growth forecast to an average 0.7pc from the original 4pc for the rest of the administration.

The budget — likely to pass largely unchanged given the governing Morena party's two-thirds majority, including allies — must be approved by both the upper and lower houses by 15 November.

By Rebecca Conan