One More Month of OPEC+ Cuts?
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One More Month of OPEC+ Cuts?

Photo by:   Clinton Steeds, Flickr
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Peter Appleby By Peter Appleby | Journalist and Industry Analyst - Tue, 06/02/2020 - 12:36

Mexico’s crude basket kept rising yesterday. The barrel climbed another 4.25 percent yesterday to reach US$31.14 reported PEMEX, following its performance in May with a 138.96 percent increase. The reasons behind this rise are multifaceted but a big driver is the 9.7MMb/d production cut that OPEC+ countries agreed on last month. Now, the same countries are thinking of extending the cut, reports Bloomberg.

Rumors that began at the end of last week about the chance of keeping reduced rates of production for another one to three months are gaining traction. The group, which includes the world’s major producers including Russia and Saudi Arabia, reported “to favor prolonging cuts by one month.” The meeting to make the decision formal will be held on June 4, says Reuters. The strong performance of oil in recent weeks has helped stabilize the market amid concerns of over supply but has still left the world’s leading benchmarks well below their pre-pandemic prices. WTI and Brent stood at US$61.18 per barrel and US$66 per barrel respectively on January 1. As of 12:15 GMT today, they are at US$36.14 per barrel and US$39.15 a barrel respectively, reporters Reuters.

Extending output reductions will help to clear the glut of crude that sparked the fall of prices into negative territory for the first time ever just over a month ago and to continue a steady price increase in parallel with COVID-19 restrictions being eased.

Mexico’s part in extending the cut is so far unclear. The country avoided reducing its output by the 400Mb/d OPEC+ countries requested during the first meeting that nations had to hash out a solution to the drastic fall of prices. Instead, Mexico’s Energy Minister Rocío Nahle accepted a 100Mb/d cut, while US President Donald Trump stepped in to pick up the 300Mb/d slack. The country has shut-in new wells and thousands of workers from PEMEX and its subcontractors have been moved ashore from offshore platforms. Whether Mexico’s leaders will want to extend output reductions is anyone’s guess.

However, the country is reopening its major industries and regions with low COVID-19 case counts. Complications from the pandemic appear to have cost around 12.3 million jobs, the majority of those in the nation’s large informal market, says INEGI. Meanwhile, the country’s National Council for the Evaluation of Social Development Policy forecasts that the impact of COVID-19 could drag between 6.1 million and 10.7 million Mexicans into poverty.

Photo by:   Clinton Steeds, Flickr

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