Oil Prices Make the Headlines Once MoreBy Peter Appleby | Thu, 06/11/2020 - 22:24
Oil prices were once again in the news as OPEC+ thrashed out an extension deal while Mexico sat on the sidelines. Mexico’s focus on internal concerns has seen success, as the country’s rehabilitation of its National Refining System has delivered on its capacity increase promise, albeit at a cost. As the week progressed, however, prices took a tumble.
The historic 9.7MMb/d production cut that OPEC+ nations agreed to bring stability to the oil markets was extended for one month to the end of July, this time without the participation of Mexico. The production cut has had success in reducing global storage levels after a crude glut built up due to COVID-19 lockdowns. Yet, the market is still very sensitive. The one-month lengthening was considered apt for the current conditions and should calm markets further. Mexico, meanwhile, decided that it had fulfilled its requirements by cutting production by 100Mb/d during May and June. But Mexican service companies are struggling. PEMEX, the market’s main player, has just cancelled a slew of contracts putting the future of service companies in doubt.
Volatility raided the market on Tuesday after oil prices dipped with the announcement from some of the world’s largest oil producers that their voluntary cuts – those taken on top of the OPEC+ reductions – would not last beyond June. Limiting the concern was news that US storage levels dropped for the second week in a row suggesting that OPEC+’s cuts had worked and that the reopening of economies in various regions of the world was helping drain surplus. On a sour note, PEMEX deaths continued climbing.
The rehabilitation of Mexico’s National Refining System, a central part of the administration’s energy sovereignty strategy, has so far increased the maltreated system’s capacity by 17 percent. However, in regions around the six refineries, complaints are being raised due to the presence of sulphur dioxide, a byproduct of the refining process. Such is the concern that PEMEX has been reported to the National Human Rights Commission.
Oil prices were once again shown to be fragile as WTI plummeted over 11 percent during Thursday morning’s trading. The drop came as a result of the US Federal Reserve and OECD announcing gloomy reports on the future of the world’s strongest economies. COVID-19 and its consequences look likely to be felt for a long time yet.