Mexico's up-and-down oil price -- now it's down, and sales are up

Mexico finally seems to be sorting out its problems over oil pricing and sales -- and in the process going back to the lowered price of early June that started the whole ruckus.

Prices were cut $1.35 a barrel last week, bringing Mexican oil back to about tallies.

In the interim, Mexico has undergone a major policy debate over oil and has been buffeted by criticism abroad.

The debate began when Jorge Diaz Serrano, head of Petroleos Mexicanos (PEMEX) , the Mexican state oil enterprise, decided to slash oil prices $4 a barrel. That step unleashed a debate over oil policy that split the Mexican government and led to Mr. Diaz Serrano's resignation.

The debate still swirls. But the price for Mexican crude is now just about what Mr. Diaz Serrano ordered June 2.

For two months, however, Mexico's price went up and down, and production was cut shsarply as foreign buyers refused to pay higher Mexican prices. Mexico lost more than $2 billion in oil revenue.

The ensuing debate reached into the very fabric of Mexico's government. Not only did it lead to Mr. Diaz Serrano's resignation as head of PEMEX, but it also took him out of the running for the presidential nomination of Mexico's dominant political party.

Mexican observers say, moreover, that Mexican President Jose Lopez Portillo lost prestige over the issue. Few Mexicans believe that the original price drop was ordered without his approval.

His subsequent inability to make higher prices stick amid the current world oil surplus was viewed widely in Mexico as a sign of weakness.

At the same time the Mexican government became embroiled in a series of disputes with the French government and a number of United States oil firms over pricing -- and acrimonious words went back and forth.

Mexico suspended all sales to France in early July. They have yet to be resumed, but there is expectation that oil will again flow to France in the next couple of weeks.

A number of US oil firms stopped purchasing Mexican petroleum even before the Diaz Serrano oil price cut as last spring's world oil glut made demand for oil sluggish.

Then, after PEMEX rescinded that price cut, other US firms stopped purchases of Mexican oil.

The Lopez Portillo government threatened to permanently cut off supplies to buyers who would not pay the higher price. As US purchases dropped from 750,000 barrels daily to 205,000, Mexico indicated it might halt sales to 10 of the 17 US firms purchasing Mexican oil.

But this attempt to use oil as a weapon did nto work. Mexico has been forced to go along with the rules of supply and demand. Its new oil price averages $31 .24 a barrel and compares with the $32 a barrel for the somewhat superior Saudi Arabian crude.

US purchases of Mexican oil at this cheaper price have resumed, and Mexico is again pumping almost 3 million barrels daily.Half of that is being sent overseas. About half the export total goes to the US.