The mexican govt seems like a good trader. https://www.bloomberg.com/news/feat...et-history-of-wall-street-s-largest-oil-trade
they seem to be trading w/ a very solid edge, lol in a way reminds me of porsche-volkswagen, in that at some point the trader actually has significant influence on how fundamentals develop in a particular trade
it also begs the question, if these guys are 'recommending' bullish energy bets to majority of the street while a large whale is buying tons of put options with price target sub-$38 on crude by end of this year, should we assume there are similar things going on w/ other assets etc? because it def looks like there's a whole hidden hierarchy, in terms of who gets the actual, alpha-generating idea execution, and who gets to hold the bag under guise of buying into a good investment!
There is nothing surprising that an oil producer is hedging against future price movements. That is why futures were invested in the first place. Anybody remembers SouthWest?: "It loaded up years ago on hedges against higher fuel prices. And with oil trading above $90 a barrel, most of the rest of the airline industry is facing a huge run-up in costs, and Southwest is not. Southwest owns long-term contracts to buy most of its fuel at the equivalent of $51-a-barrel oil through 2009. The value of those hedges soared as oil raced above the $90-a-barrel mark and they are now worth more than $2 billion. " http://www.nytimes.com/2007/11/28/business/worldbusiness/28iht-hedge.4.8517580.html That was back in 2007. That is when a separate industry becomes an oiltrader and actually makes way more profits as from its original business... What I don't get is if price was 100+ or even 120+, why did the Mexicans buy an average of 70 puts? That is quite a bit of drop, and it wasn't guaranteed. They could have bought the 100 puts and it is a no loss trade, if it goes down, the price is locked in, if it stays high, since they are the producers, they are still making shitloads... Had price only dropped to 75ish, they lose on the puts AND on the price of oil...
From 2001-2017 they've earned $2.4B. They made $5.1 in 2009, $6.4 in 2015, and $2.7 in 2016. That means they basically lost $.9B in each of the other years. Oil crashed in 2008, 2014, and 2015. Looks to me like they systematically buy ~$1B of puts each year, and in the past that's worked out to very low delta options (~50% of spot price). They probably "make" multiples of that $1B spend given it lowers their interest rate by 30bps...they probably get the cheapest hedge they can get away with. It's not to discount their earnings. They've made about $2.4B more than me trading oil but this strikes me as a straightforward systematic hedge. Which makes sense, since they're in the business of hedging against a crash and not trading oil.
"its hedges raked in $14.1 billion in gains and paid out $11.7 billion in fees to banks and brokers." OK, now we know who the real profitmaker is. Also, we can stop complaining about brokers' fees.... If Mexico made huge on puts, someone also had to honor those puts and lose big. Apparently it wasn't the banks. Maybe the banks convinced some HFs to sell those puts...
When you are the producer, buying puts is called insurance, aka cost of business. They didn't really lose in those years, because oil price stayed high, thus their profits from oil stayed high too.
Good points. As mentioned another post, very complex supply chain in trading crude oil. Some hedges lost money, while at the same period some gained. Hedging involves not only timing and directional bets, but also hedge size/ratio. Just 10 cents.