A historic multilateral deal to lower global oil production and stabilize prices, led by record cuts from Saudi Arabia and Russia, is at risk as Mexico refuses to agree to the proposed curbs.
The impasse threw into doubt efforts to revive the market from a debilitating COVID-19-induced slump.
The deal by OPEC+, which dwarfs previous interventions and has been encouraged by US President Donald Trump, is also aimed at ending the price war between Riyadh and Moscow that helped pushed crude oil prices down to the lowest level in almost two decades.
Photo: Reuters
The deal is conditional on the consent of Mexico, which was the only participant not to agree to the proposal, OPEC+ said in a statement released after more than nine hours of videoconference talks on Thursday.
The tentative deal would result in cuts of about 10 million barrels a day during next month and June. Saudi Arabia and Russia, the biggest producers in the group, would each take output down to about 8.5 million per day, with all members agreeing to cut supply by 23 percent, one delegate said.
The refusal by Mexican Secretary of Energy Rocio Nahle to accept the proposed cuts reflects her nation’s determination to keep as close as possible to the production and spending plans it has been pursuing, despite the price slump.
In a Twitter post shortly after leaving the meeting, she said the nation is ready to reduce output by 100,000 barrels per day, far less than the 400,000 barrels per day proposed by the group, and from a higher baseline.
Attention has turned to a meeting of G20 energy ministers yesterday, where nations outside OPEC+, including the US and Canada, could contribute as much as 5 million barrels per day of additional reductions.
The unexpected setback does not change the urgent need for OPEC to reduce production. Crude oil’s spectacular crash this year has threatened the stability of oil-dependent nations, forced major companies such as Exxon Mobil Corp to rein in spending and risked the existence of small independents.
“Mexico can and should join the international community in stabilizing the oil market,” said former Mexican deputy secretary of energy for hydrocarbons Aldo Flores-Quiroga, the who negotiated OPEC+ deals from 2016 to 2018. “The production cut is both necessary and possible. It’s the responsible thing to do domestically and internationally.”
OPEC+ has been put under intense pressure from Trump — who spoke with the leaders of Russia and Saudi Arabia by telephone on Thursday — and US lawmakers, who fear thousands of job losses in the US shale industry.
“Both Saudi [Arabia] and Russia were going to have to cut anyway, and these cuts allow them to win political points, too,” Energy Aspects Ltd chief oil analyst Amrita Sen said.
While the headline cut equates to a reduction of about 10 percent of global supply, it makes up just a fraction of the demand loss, which some traders estimate at as much as 35 million barrels per day.
Crude oil prices have tumbled by half this year as the spread of the coronavirus coincided with a bitter price war that saw producers flood the market.
Brent crude on Thursday fell 4.1 percent to US$31.48 a barrel in London, even as the agreement began to take shape.
There was no trading yesterday in New York or London due to the Good Friday holiday.
“COVID-19 is an unseen beast that seems to be impacting everything in its path,” OPEC secretary-general Mohammad Barkindo said in a speech at the online gathering.
“The supply and demand fundamentals are horrifying,” and the expected oversupply, particularly in the second quarter, is “beyond anything we have seen before,” he said.
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