Experts question shift in Mexico oil hedging strategy
Use of put spreads in oil hedging programme leaves Mexico dangerously exposed to low oil prices if global economy sinks
Following a report that Mexico has decided to use put spreads instead of put options for its sovereign hedging programme, risk management experts warn the Latin American country has left itself dangerously exposed to downside risk.
The worries follow a Financial Times report claiming Mexico had used a bear put spread with a high strike price of $80 to $85 per barrel of West Texas Intermediate (WTI) crude oil and a low strike price of about $60/bbl to hedge its crude exports for 2013.
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