Mexico Makes a Deal: OPEC+ Production Cut to Go Ahead
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Mexico Makes a Deal: OPEC+ Production Cut to Go Ahead

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Peter Appleby By Peter Appleby | Journalist and Industry Analyst - Fri, 04/10/2020 - 11:11

Mexico has come to an agreement with OPEC+ member countries over an oil production cut, having yesterday blocked an agreement being reached.

Mexican President Andrés Manuel López Obrador has announced that last night, he had come to an agreement with US President Donald Trump to resolve the standoff. According to Reuters, the US is now set to compensate for the oil production Mexico is unwilling to cut from its output.

The collective 10MMb/d production cut arrived at by OPEC+ nations yesterday required Mexico to reduce its own production by 400MMb/d from its October 2019 rates, which stood at some 1.65MMb/d. However, Mexico’s Energy Minister Rocío Nahle, a central figure in the government’s promise to increase its oil production to 2.6MMb/d by 2024, refused the deal and left the virtual meeting.

Yesterday, Minister Nahle tweeted that Mexico had proposed reducing production by 100Mb/d from Mexico’s March 2020 over the next few months. The minister said on Twitter: “In the agreement to stabilize the price of oil at the @OPECSecretariat, Mexico has proposed a reduction of 100Mb/d over the next two months. From 1.781MMb/d of production we reported in March 2020, we will decrease to 1.681MMb/d.”

México en el consenso para estabilizar el precio del petróleo en la reunión de la @OPECSecretariat ha propuesto una reducción de 100 mil barriles por día en los próximos 2 meses. De 1.781 mbd de producción que reportamos en marzo del 2020 disminuiremos a 1.681 mbd. @GobiernoMX

— Rocío Nahle (@rocionahle) April 10, 2020

Other OPEC delegates are unaware of the terms of the deal between Mexico and the US, reports Bloomberg. It also remains unclear whether Saudi Arabia has accepted the terms, though spokesmen for the Kremlin said President Putin considers an understanding to have been reached.

Should it be formalized, the agreement looks to be a political victory for Mexico, which has received heavy blows from the oil price slump. However, experts have questioned the unwillingness of Mexican energy leaders to reduce PEMEX’s output, considering the exceptionally low oil prices, which have fallen well below the NOC's US$14.20 production cost per barrel average. The Mexican crude oil basket’s value had fallen to US$10.37 per barrel on March 30, from a price of US$58.61 on January 7. Mexico had taken measures to combat this, including a US$2 per barrel reduction of its flagship Maya Crude mix into several world markets and had latterly reduced exports by 33 percent, while both the country’s sovereign debt and PEMEX’s credit ratings have recently been downgraded.

President Trump had previously made public his grave concerns for the US energy sector which he feared could be “wiped out” due to the price war between Russia and Saudi Arabia and the reduced demand caused by global lockdowns in the face of COVID-19. The US shale had been heavily impacted with Rystad Energy reporting idle rigs as many operators experiencing prices below their operating costs.

Photo by:   Presidencia de la República

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