Every year the country of Mexico purchases oil hedges to ensure a
floor price for approximately 250 million barrels, which is equal to their total annual oil exports.
In other words, Mexico seeks certainty of revenues from their oil exports, so they set up hedges.
There are differing strategies, but I believe Mexico just purchases PUTS to build a financial floor in the value of their exports.
Let's say oil is $80wti, and Mexico wants to protect against downside, they may buy contracts that protect them if oil drops below $70 or $75.
Sometimes is works, like during COVID panic.
Sometimes it fails, like during conflict in Eastern Europe.
All in all, they have certainty of cash flow, so their Govt can commit to large capital outlays each year.
The goal is to give up some upside to protect against unexpected downside.
There is no Right or Wrong, just smooth ride versus bumpy ride.
Here's an article to browse:
https://energywatch.com/EnergyNews/Oil___Gas/article14486414.ece Some people don't have house insurance, some drive without auto insurance, some refuse dental insurance and many of us refuse forms of life insurance.
When it comes to Mexico, they prefer to buy insurance that protects against downside in the price of their oil exports.