The drop in Mexican crude oil prices this week to around $20 a barrel is likely to put pressure on an already tight budget of state oil company Petróleos Mexicanos, while government revenue is protected at least this year by oil price hedges. Pemex, which produces 2.27 million barrels a day of crude oil, has an investment budget this year of around 300 billion pesos, equivalent to $16.3 billion at the current exchange rate and down from $23.5 billion in 2015. But the fall in Mexico’s export crude price, which dipped below $19 on Wednesday and sent the Mexican peso to new lows against the U.S. dollar, raises concerns that Pemex may have to make further cutbacks. If that is the case, Pemex could focus on its core operations, such as shallow water and large onshore deposits to maintain output, while minimizing exploration, said Pablo Medina, a Latin America upstream analyst at Wood Mackenzie. “I would say that a big [budget] cut could affect production levels.” Mr. Medina also expects Pemex to step up efforts to farm out projects, which could contribute production in one to three years by bringing in joint-venture partners and financing. Pemex went on the defensive last week, saying its cost of extracting oil from the ground is among the world’s lowest at less than $10 a barrel on average, with some fields below $7, although that excludes exploration and development which raises the average cost to $23 a barrel.