Mexican Oil Production
Research for Online Investors

by John Dalt

3/09/10

Mexico’s oil production is falling so fast they will soon be oil importers.  The New York Times has found the story we have brought to your attention, starting over a year ago.  The problem for Mexico is politics.  They kicked out foreign oil companies in 1938, claiming oil profits for the state.  Oil income supplies 40% of the revenue to run the government.  What do they do when the fields run dry?

Mexican oil production was almost 3.5 million barrels per day in 2004, this year they are expected to average 2.5 million barrels.  Exports to the U.S. have dropped by almost a third during that time.  Mexico is struggling to replace their reserves.  They do not have the expertise to develop challenging fields, and suffer from lack of funds.  The government drains all available money out of Pemex (the government oil company) to pay for…government.

Pemex is hampered by laws from the nationalization seventy years ago.  Oil companies cannot book Mexican oil reserves on their balance sheet.  Mexico has promising development blocks off their coast, but experts believe it could be 10 or 15 years before gulf production could be of any significance.  That will be too late for the government.

On Sept 14, 2009 we wrote, “Mexico announced that production at the Cantarell Oil field has dropped to approximately 500,000 barrels of oil per day.  Four years ago, Cantarell was producing 2.1 million barrels.  We better find a new supplier.  Canada?  China has bought into the oil sands projects.  Where will the oil go when there is not enough to go around?”

On Jan. 27, 2009 we wrote “Some information that helps weave together the future of oil imports came from Pemex, Mexico’s state oil company. They announced last Wednesday that crude production was down 9.2% from 2007. Pemex produced 2.79 million barrels per day, down from 3.08 million barrels per day in 2007. Exports dropped 16.8% to 1.4 million barrels per day. Mexico is the U.S. third largest oil supplier.  The problems are evident in these numbers, while production dropped 9.2%, exports fell 16.8% due to more oil consumed at home. You can readily see as production falls the exports fall 82% further.”

You can read the New York Times article “Mexico Oil Politics Keeps Riches Just Out of Reach”

Our conclusion from this information is the same as it was last year. Mexico is about to pay a heavy price for their socialist experiment with state managed oil.  Mexico will have civil unrest in the future as oil money is not available to finance the government.  Mexico will cease to export oil.  All of this will happen as the world economy improves and oil demand increases worldwide.

Black gold will again take its place in the lexicon of traders world-wide.  The recent run-up in the price of crude oil (USO) seems early to us.  The price has moved higher in the face of increasing inventories.  Without a terrorist event or other supply disruption we should see a lower price to buy USO.  Keep it on your radar.

A 'short' followup to our article on traders moving to the next weakest target, it is not a state.  Short sellers are piling in on The Governor and Company of the Bank of Ireland (IRE).  Volume is through the roof starting late last week.  Ireland is one of the members of the "PIIGS" as in Portugal, Ireland, Italy, Greece, and Spain.

To the Mailbag:

“If taxes are voluntary, I’m opting out!”---paid up subscriber G.C.

John’s response: Good luck…

"You might point out that there are no free missiles, tanks, bombs, or soldiers.  Maybe the rest of the world should pony up and pay their fair share of keeping the oil flowing to everyone.   Then, we might have medical care like the French, German, Canadians, and every other western industrialized nation. ---subscriber P.D.

John’s response: Your right, which is why I pointed out bringing our service members home.  Let them fight it out among themselves.  If it gets out of hand, and they threaten us.  We will go kill them all, and return to our shores.  We already have the best health care, which is why the government officials from those countries come here for treatment when their state health care gives them a death sentence.  Those countries medical care is like it is because they have mistakenly bought in on the socialist plans left over from Hitler and Stalin.  It has very little to do with "western" or "industrialized."

“Obama just does not get it, or maybe knows there's not a thing he can do to stop the avalanche that's coming so might as well enjoy while we all can…” ---paid up subscriber T.M.

John’s response: People don't realize what is going on around them.  I am reminded of the story about a frog in water, heat it gradually and they don't realize they are being boiled.

The information presented in this newsletter is based on generally available news releases, corporate filings, current events, interviews and the editor’s opinions.  It may contain errors and you should not make investment decisions based solely on what you believe you have read here.  Do your own research, it is your money.  If you lose it, it is your responsibility, not ours or your grandmothers!  The editor may or may not have a position in any securities discussed.  The editor may have held a position in a security earlier, or in the future.

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