Sharp Reduction in Daily Output of Mexican Crude Worrisome for Global Economy, Could Boost US Oil ETF

| About: The United (USO)
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Mexico's Biggest Oil Field Sees Decline

  • Summary: Crude-oil production at Mexico's Cantarell oil field, the country's biggest, is falling far more quickly than predicted by the country's state oil monopoly. Output, which was above two million barrels a day under two years ago has dropped from 1.92 million barrels a day in January to 1.74 million a day in June. That compares with the official prediction by Petróleos Mexicanos that production would decline to a daily average of 1.9 million during 2006. Such a drop is bad news for the global and U.S. oil markets. With the U.S. trying to reduce its dependency on oil from the Middle East, a strong decline in Mexican production, which currently supplies the U.S. with 8% of its crude, could spell increasingly high prices and an even greater dependency on unstable Middle Eastern monarchies.
  • Comment on related stocks/ETFs: For a related article on Venezuela's state-run oil monopoly PDVSA, see my summary of yesterday's WSJ piece Hugo Chávez' Reforms Mean a Severe Reduction in State-Run PDVSA's Daily Output. An oil supply-shock would boost the price of oil, benefiting the US Oil ETF (NYSEARCA:USO).