Mexican oil enjoys technological renaissance

Mexican Holiday!
In Mexico every year they have a holiday to commemorate the day they kicked out foreign oil companies! Now what they should have is a new holiday to celebrate the day they let them back in! After 72 years the Mexican government finally came to their senses and decided to allow foreign oil companies to save their rapidly declining industry.

The Mexican government for years has used the Mexican state owned oil company Pemex as their personal piggy bank using its revenue for as much as 40% of the Mexican government budget. Yet the years of using oil revenues to fund a very powerful political party did not allow for the type of research and development and maintenance that an oil company needs to do to maximize its precious reserves. The Mexican government for years has squandered the potential of Pemex and because of some misguided national pride had allowed it to never reach its full potential as a major oil company.

Yet after some battles that cleared the way, it now appears that common sense has prevailed and the technology that Mexico desperately needs will be available and President George Bush's dream of a "hemispheric" energy policy is one step closer to being a reality. Mexico's oil production has fallen close to 1.0 million barrels over the last year and is running the risk of not having enough oil to export. Currently Mexico is responsible for supplying 12% of US imports.

That is a crime because Mexico's proven reserves, according to data from Rigzone, experienced the largest decline out of North America, falling from 52.0 billion barrels in 1989 to 21.5 billion barrels in 1999 to 11.9 billion barrels last year. Declining output from Mexico's offshore Cantarell oil field in the Gulf of Mexico lies behind the significant decline in the country's oil reserves. Now we should see those proven reserves spike back up as new technology will allow Mexico to tap into a host of new supply and even see their older fields slow the decline. With foreign oil expertise, we should see a renaissance in the Mexican oil industry and every prediction of the impact this will have on potential future supply will be conservative.

This is a great day for Mexico and a great day for world! And if that is not enough good news for you then how about this! Gasoline will not hit $3.00 a gallon over the Christmas holiday. Merry Christmas! Ok I know what some of you are saying that you are already paying $3.00 a gallon, but what I am talking about is the national average. It is likely that the recent unseasonal retail pump price spike has come to an end! According to the Department of Energy the national average retail gas price stands at 295.8 up over 32 cents from a year ago. We just saw price spike in a week over 10 cents.

Yet Yesterday EIA reports show that most likely our holiday gasoline nightmare is coming to an end! The Energy Information Agency reported a surge in gasoline supply, production and imports in a sign that the market is correcting the dislocations and problems that it has experienced in recent weeks. From refinery outages to strikes in France and strong demand for fuel in Europe and China, high prices and high margins saw supply of gasoline hit a 6 week high! The Energy Information Agency reported that gas supply increased 3.81 million barrels as refineries runs jumped to 87.5 percent and gasoline production increased last week, averaging 9.4 million barrels per day. On top of that we saw a key reversal in oil which should remove even more upward pressure on gas! Futures are making historic moves!

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.

 

Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.


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