Analysts - Best-Case For PEMEX To Hold Steady At 2.5 MBD Through 2010; Or Slide Restarts W/I Months

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MEXICO CITY (Reuters) - Mexican crude oil output, which has been stable since September, will soon resume its fall and the medium-term outlook is increasingly cloudy due to doubts surrounding two major projects. State oil monopoly Pemex has kept production around 2.6 million barrels per day for six of the last seven months, prompting officials to forecast Mexico has overcome the worst of its five-year slide in oil output.

In recent months, Pemex has slowed the rate of decline at its Cantarell field, largely by stepping up drilling at smaller satellite deposits, while boosting production at its Ku Maloob Zaap (KMZ) complex faster than previously planned, helping it offset poor results at its Chicontepec project.

However, the underlying problems at Cantarell persist and Pemex does not think it will be able to squeeze much more crude from KMZ, which is currently pumping near 850,000 bpd, putting an increasing burden onto the troubled Chicontepec project to sustain Mexican production capacity. "At best, the recent stabilization will last throughout the year; at worst, it could end in the coming months," said Eurasia Group's Allyson Benton in a recent research note.

Sliding Mexican crude production is one element in the bull case for oil. The prospect of a country that is currently one of the United States' top four suppliers of crude becoming a net oil importer itself within the current decade underscores the shifting supply and demand dynamics of the market. Similarly, bond investors are concerned by Mexico's output problems due to its reliance on dwindling oil export volumes to fund the budget amid political gridlock.

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http://in.reuters.com/article/businessNews/idINIndia-48048920100428