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Uncovering the Secret History of Wall Street's Largest Oil Trade


Javier Blas, Bloomberg Markets
Ilustrator: Armando Veve for Bloomberg Markets

Year after year, Mexico places a multi-billion-dollar bet in a deal that big banks lust after. This is the untold story of how the “Hacienda hedge” happens.

The men huddled in the same first-floor conference room as always, only this time they’d decided to make their annual oil bet bigger and bolder than ever before. Fewer than a dozen representatives from three Mexican government ministries and Petróleos Mexicanos, the state energy company, were about to make a wildly contrarian play. If it paid off, the profits would be enormous. And if they were wrong? They would have spent a small fortune in vain.

Almost seven months earlier, at the beginning of January 2008, the price of oil had flirted with $100 a barrel for the first time in history. It retreated to below $90 by the end of the month, but then, in early February, the price took off. West Texas Intermediate, the U.S. benchmark, reached a new high every month—$103.05, $111.80, $119.93, $135.09, $143.67—until finally, in early July, it hit $147.27 a barrel. Seemingly insatiable demand from emerging economies, including China and Brazil, encouraged outrageous chatter of $200 a barrel among the giddiest traders. Even those with bearish outlooks were fairly optimistic, figuring there would be a correction, not a crash.

Yet on July 22, 2008, just 11 days after oil reached its all-time high, this small group of Mexicans gathered to discuss their very different outlook in the ornate surroundings of Mexico’s finance ministry, the Secretaría de Hacienda y Crédito Público. The ­palace—located on the Zócalo, the capital’s vast main square—had been built centuries earlier atop what once was the home of conquistador Hernán Cortés. On the walls around the main entrance, gigantic Diego Rivera murals depict the country’s history.

When “the men from Hacienda,” as they’re known, ­headed back to their desks, their mission was to lock in, or hedge, Mexico’s oil revenue through a deal with Wall Street banks. Within minutes they began firing off messages to the oil trading desks of Barclays, Goldman Sachs, Morgan Stanley, and Deutsche Bank. Their ­instructions were to buy “put” options, contracts giving them the right to sell oil at a predetermined future price, at levels ranging from $66.50 to $87 a barrel. The banks receiving the orders had never seen an oil deal this big. The price tag for the options was $1.5 billion.

From Houston to New York to London, bankers worked against the clock to close the gigantic transaction. It amounted to 330 million barrels, enough to meet the annual oil imports of the Netherlands. Barclays, which was then muscling into the commodity big leagues, did the bulk of the buying with 220 million barrels. Goldman followed, at 85 million barrels.


Blas is chief energy correspondent for Bloomberg News in London.

This story appears in the April/May 2017 issue of Bloomberg Markets magazine.

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