Mexico May Soon Cut Price of Its Light Crude

Mexico, the biggest foreign oil supplier to the United States, is expected to announce soon that it is reducing the price of its top-grade light Isthmus crude oil in the face of a glutted world market, government sources said Friday.

A reduction would likely aggravate further Mexico’s financial woes and would make it more difficult for the Organization of Petroleum Exporting Countries to hold the line on prices.

Last month, Mexico cut its price for heavy Maya crude by $1.50 per barrel to $24. But it held prices steady on its light oil.

The government sources, who spoke on condition they not be identified, did not say how much the price might be cut.

Not OPEC Member

Mexico’s price for Isthmus oil was lowered to the current $27.75 a barrel from $29 in February following a decision by OPEC to reduce its high-grade Arab light oil by $1 to $28 a barrel.

Mexico is not an OPEC member but it often follows the cartel’s pricing strategy. Mexico’s energy secretary, Francisco Labastida, is an observer at OPEC’s current meeting in Vienna. The 13 OPEC ministers have yet to agree on what type of action to take to halt the decline in world oil prices.

Treasury Minister Jesus Silva Herzog said last month that oil sales had fallen recently, apparently because of weak demand.

Cut Back Public Spending

Business leaders said in press reports Friday that a price reduction would mean that Mexico, struggling with a $94-billion foreign debt, must cut back public spending even more. The administration recently announced plans to trim expenditures by 18%.

Last month’s reduction in the price of heavy crude translated into an annual loss of $443.3 million in revenues. Oil is the country’s No. 1 export.

Forty-six percent of Mexico’s exported oil is of the Isthmus variety, while 54% is heavy crude.

Of the 2.75 million barrels of oil Mexico produces daily, it exports an average of 1.5 million barrels, 46% of it to the United States.

Last year, Mexico provided 13.8% of all U.S. oil imports, or 4.8% of all the oil used daily in the United States, according to the U.S. Energy Department.