Mexican Crude Basket Drops 3.84 Percent

As if the oil and gas industry needed reminding of its fragile position, world benchmarks shed value yesterday as the repercussions of the greatest demand destruction in history continued to be felt.

At the close of yesterday’s trading, Brent had fallen 4.4 percent to US$29.60 per barrel, with a loss of US$1.37. Likewise, WTI saw 2.6 percent of its value lost, resulting in the crude falling US$0.60 in price to US$24.14 per barrel. Meanwhile, the Mexican crude basket lost 3.84 percent of its value, falling US$0.84 to sit at US$21.05, according to El Economista.

The turbulent journey of the world’s oil prices in the past two months has been driven by the sharpest drop off in oil demand ever seen, which according to the International Energy Agency, has shown 9.3MMb/d from global demand in 2020 in comparison to 2019. During April, demand was 29MMb/d lower than April 2019, and the lowest it had been since 1995, said the agency.

The Energy Intelligence Research Unit forecasts that Brent will reach US$40 per barrel by 3Q20 as demand begins to increase again in line with the opening of economies and the flow and people and goods restarting. Similarly, Rystad Energy forecasts a return to above 100MMb/d by December of this year. But before this, a high degree of sensitivity to global economic movements is likely to par for the course in oil prices.

Last month, Mexico agreed to an OPEC+ production cut of 100Mb/d in May and June having refused the 400Mb/d cut the group was requesting. Mexico is playing its part in the output cut and is likely cutting more than it promised given the shut ins announced by President Andrés Manuel López Obrador and the moving ashore of several thousand PEMEX rig workers due to COVID-19 fears.

But falling prices despite the OPEC+ production cut having taken affect at the beginning, together with the additional million barrel cut that OPEC+ leader Saudi Arabia will be making through its state-owned Saudi Aramco company, may be a concern.

Should there be second waves of infections, as has been the case in Germany and South Korea last week after lockdown measures were loosened, then countries and their economies could shut their doors once again.

President López Obrador is set to outline a reopening plan tomorrow or Thursday and Minister of Health Jorge Alcocer announced in yesterday’s daily briefing that 300 municipalities around Mexico would be resuming activities. Though this is only a fraction of the 2,457 municipalities of the republic, it is a signal of what is likely to come. More stable oil prices should follow.