Mexico Surpasses Production Cut Commitment

A day after the news broke that the OPEC+ meeting scheduled today was delayed due to concerns that some countries had not fulfilled their production cut commitments, data released by Mexico’s CNH shows the country has met its 100Mb/d cut and exceeded it.

Minister of Energy Rocío Nahle had agreed to reduce Mexico’s output by 100Mb/d from a projected production point of 1.781MMb/d in April. According to El Economista, Mexico never actually reached this production level and, therefore, through the additional output cut of 94Mb/d, the country surpassed the agreement it made to reduce its output.

The reasons for not reaching this production level have yet to be reported, though PEMEX’s decisions to implement shut-ins on new wells may have played a part. The output production will also have been naturally decreased as thousands of PEMEX works and subcontractors were moved ashore from platforms in the Gulf of Mexico as attempts to lessen the impact of COVID-19 were made.

As reported by El Economista, CNH Commissioner Sergio Pimentel stated that production until May 30 had fallen to 1.652MMb/d from the 1.727MMb/d in April. Some 1.527MMb/d was produced by PEMEX, while the remainder had been produced by Mexico’s private players, including the first private company to produce offshore since the Energy Reform, Eni, as well as Hokchi, which has recently come into production.

The production cut is due to finalize at the end of June, yet whether it will be extended is still to be seen. At the beginning of this week there were reports that OPEC+ had agreed in principal to extend the cut by a minimum of one month, based on the understanding that the cuts have been successful but that oil prices, while climbing, remain low.

On Tuesday, reports circulated that those countries involved in the OPEC+ talks had seen evidence of “quota cheating” by some countries and a failure to reduce their production to the amounts agreed upon. Subsequent statements were made by Nigeria and Iraq, in which both countries said they were working to meet the agreement and oil prices saw small losses. The OPEC+ meeting that was due to be held today has been postponed.

Oil companies will be eager to increase production as the world’s global storage levels falls. But they will also be very aware of the current fragility of the market. Many governments have made it clear that they will shutdown their countries again and enforce strict restrictions on movements should any breakouts of COVID-19 occur. For example, last month Seoul was forced to close its bars and clubs just four days after reopening after a cluster outbreak of COVID-19 cases was seen.