Oil Prices to Stay Low for Years, Bank of Mexico Says

laht.com

MEXICO CITY – Low petroleum prices will be around for “years, not months,” and Mexico will have to adjust to lower revenues from the oil industry for a longer period of time, Bank of Mexico Gov. Agustin Carstens.

“We had gotten used to spending with revenues from an oil price of between $80 and $100 per barrel” in Mexico, Carstens said during a meeting with legislators from the conservative National Action Party, or PAN.

“We no longer have those revenues, especially when it appears that the drop is pretty durable and we can say it is going to be a question of years, not months,” the central bank chief said.

The rate at which the country has been spending in recent years cannot be sustained without taking on debt, but borrowing will lead to higher taxes, Carstens said.

“The issue is that we have to adjust to a lower level of income,” Carstens said.

The 124.3 billion pesos ($8.57 billion) in spending cuts announced by the government last week will help cushion the impact of falling oil prices in 2016, “especially because it is foreseeable that this situation of weak oil prices will last for a prolonged period,” the central bank chief said.

Commodity prices, especially the price of petroleum, have fallen due to weak global demand, supply issues and the appreciation of the dollar, Carstens said.

Mexico, the world’s 10th-largest oil producer, relies on petroleum sales to fund a large portion of the federal government’s budget.