In need of funds, Mexico ups oil flow but risks lowering world prices

Mexico is quietly upping oil production in a move likely to have far-reaching consequences not only for Mexico, but also for other oil exporting countries. The move will put an additional 200,000 barrels of petroleum onto the world market each day, at a time when there is a worldwide surplus of oil and some Mideast oil producers are talking of cutting production.

There is some speculation that the increased Mexican production could trigger a further softening of world oil prices -- and in the process speed plans by members of the Organization of Petroleum Exporting Countries (OPEC) to impose sharp production cutbacks to shore up declining profits.

Mexico, the world's fourth largest oil producer, is also faced with a sizable decline in its oil profits, which are used to fuel the country's expanding industrial plant and vast social services.

Although Mexico is not an OPEC member, it attends the oil cartel's meetings as an observer and generally follows the OPEC pricing structure. But Mexico's oil production boost suggests that it will not go along with contemplated oil cutbacks due to be discussed by OPEC at a meeting in Geneva later this month.

Domestically, the oil production increase will make Mexico even more dependent on petroleum exports. Oil currently accounts for 74 percent of all Mexican exports.

It is unclear where Mexico's additional production will go. But it is not likely directly to benefit the United States, currently the largest recipient of Mexican oil, because Mexican oil officials have decided they want to diversify their markets and develop new ones.

The reported increase in production, neither confirmed nor denied by Petroleos Mexicanos (PEMEX), Mexico's state oil enterprise, would lift the current production limit of 2.7 million barrels daily to nearly 3 million barrels within a couple of months.

It would also yield upward of $2 billion in revenue for the hard pressed Mexican economy.

Mexico officially decided in 1978 to hold production through the mid-1980s at a level just above 2.5 million barrels daily. It reached that target somewhat ahead of schedule and inched the production level slightly higher in late 1980 to the current 2.7 million barrels.

AS the year ended, Mexican officials said they expected no further production increases until 1982 at the earliest. And then, in early 1981, as the world oil glut became more apparent, there was even some talk in Mexico City of cutting production slightly. But it now appears that there was never any real likelihood of cutbacks -- and that the talk may have been simply a smokescreen sent up by PEMEX officials to mask the likelihood of production increases.

A combination of factors apparently trigged the production boost. Mexico's huge industrial development program is running short of cash -- due in part to inflation and in part to whopping cost overruns. Moreover, its oil revenues have slipped slightly in recent months as Mexico cut the price for its heavy crude by $2.50 a barrel, skipping a price boost on its lighter oil. These two actions resulted from the world o il glut.