Mexican state oil giant Pemex was spared a rating downgrade at Moody’s despite the agency slashing Mexico’s sovereign rating to just one notch above junk status.Yet, the affirmation of Pemex’s ratings masks the struggles of the heavily indebted Mexican oil firm, which has failed to deliver profits even as oil prices surged to above $100 in recent months.Moody’s Ratings on Friday affirmed the ‘ca’ standalone credit strength of Petroleos Mexicanos, as Pemex is officially known, as well as the B1 Corporate Family Rating (CFR).The outlook remains stable, meaning that at present the credit rating agency does not expect to downgrade Pemex in the next 12 to 18 months.Despite the downgrade of Mexico’s sovereign rating to Baa3 from Baa2 and the following wave of rating downgrades on major banks, Moody’s kept its ratings on Pemex unchanged and with a “stable” outlook.That’s because the rating agency expects that “the Government of Mexico will continue to provide very high and timely support to the company, as clearly demonstrated in 2025 and embedded in our forward-looking assumptions under the current administration,” said Roxana Muñoz, Vice President – Senior Credit Officer at Moody’s Ratings.Related: Why Hasn’t Oil Hit $150?But the executive noted that “PEMEX's credit profile remains constrained by persistent operational challenges, which continue to result in negative free cash flow and significant funding needs.”Pemex is struggling to reverse a years-long decline in oil and gas production while trying not to incur additional liabilities on top of its already massive pile of debt.Actually, Pemex’s debt fell in the first quarter to the lowest level in more than a decade—but at $80 billion, the debt is still substantial.Due to $16.5 billion in debt payments during the quarter, Pemex posted a third consecutive quarterly loss in the first quarter of 2026, despite a surge in oil prices in March driven by the Iran war.The heavy debt burden and debt obligations this year have stopped Pemex from benefiting from the 40% surge in oil prices in recent months.The company has also had to grapple with internal tensions and a major oil spill earlier this year.Earlier this month, Mexican President Claudia Sheinbaum announced Pemex CEO Víctor Rodríguez was stepping down and the state oil company’s chief financial officer, Juan Carlos Carpio, was stepping in to replace Rodríguez at the top job.The move came after months of speculation over Rodríguez’s future at Pemex, which has struggled with declining production, operational setbacks, and rising internal tensions.Government support for Pemex continues to be an important anchor for the troubled state oil giant, which faces some of the highest annual debt payments this year.Oil and gas production has somewhat stabilized in recent months, but this “does not signal a structural reversal of decline, and current development schemes are unlikely to materially increase output,” Moody’s said.“At the same time, downstream operations remain inefficient, while a greater focus on domestic refining reduces hydrocarbon export revenues and limits upside from higher oil prices.”Moreover, Pemex’s liquidity remains weak and very much dependent on government support, the rating agency noted.“Absent a structural improvement in operating performance, we expect PEMEX to continue generating negative free cash flow over the next 12–18 months, and to remain reliant on extraordinary support to meet its financial obligations,” Moody’s said.Pemex was spared the ratings cut this time, but it may not be spared if Moody’s downgrades Mexico’s sovereign rating further, the rating agency warned.Downward pressure could also come from a reduced government willingness or ability to support Pemex, or further deterioration in the oil firm’s operating performance, including declining production or rising costs or an increase in debt levels. Liquidity pressures could also trigger downward pressure for the ratings of Mexico’s heavily indebted state oil giant, according to Moody’s.By Tsvetana Paraskova for Oilprice.comMore Top Reads From Oilprice.comOil Prices Plunge Below $100 on Iran Deal OptimismU.S.-Iran Deal Delayed as Trump Refuses to “Rush” AgreementTotalEnergies Eyes $100M+ Stake Sales in European Solar and Wind Portfolio