Mexico City — Mexico’s government will likely prop up state oil firm Petroleos Mexicanos (Pemex) due to its vulnerability to low crude prices as coronavirus erodes demand, S&P Global Ratings said Friday, a day after it cut the ratings of both Mexico and Pemex.
The ratings agency is the second in the past week to highlight Latin America’s second-largest economy as being vulnerable, after Fitch Ratings said Pemex would be the national oil company hit hardest among regional peers.
Lisa Schineller, lead analyst for S&P’s sovereign ratings in Latin America, said the government of President Andres Manuel Lopez Obrador had shown strong support for Pemex, which is laboring under a huge debt burden.
This is further complicated by the fact that Maya crude for delivery to the U.S. Gulf Coast plummeted to as low as $12.92 per barrel on March 18. Experts say Pemex is highly vulnerable to prices below $20 per barrel.
The price has since recovered somewhat, but is still below levels seen earlier this year, before the coronavirus started to roil the Americas. It closed at $14.23 per barrel on Thursday, data from S&P Global Platts showed.
Schineller also said the government was signalling that Pemex would be at the center of its agenda. Pemex is therefore unlikely to be decoupled from the sovereign rating, she added.
“The government will provide extraordinary support for Pemex – with almost complete certainty,” she said.
Both are rated BBB since the cut from BBB+ on Thursday.