Prices and Production Rise While Sales at the Pump Struggle

The 9.7MMb/d production cut that OPEC+ countries agreed upon last month appears to be having its desired effect, with prices climbing again on Tuesday according to Reuters. PEMEX’s annual 2.6 percent year-on-year production increase for April could offer the NOC hope in the rapidly improving price environment.

As of early afternoon on Tuesday, WTI had gained 2.7 percent value to reach US$34.14 per barrel while Brent had risen 1.3 percent to US$35.98 per barrel. On Monday night, Mexico’s crude oil basket was valued at US$27.30 per barrel.

The oversupply that the world has been suffering since the arrival of COVID-19 could soon be spent, according to Bjornar Tonhaugen of Rystad Energy. “The 16MMb/d oversupply in crude during April could be reversed altogether by June,” Tonhaugen told Reuters.

The 100Mb/d production cut Mexico agreed as part of the OPEC+ cuts will have been completed by the end of June. The country, which had refused the 400Mb/d production cut by OPEC+ nations, only needed to reduce its output during May and June. PEMEX’s 2.6 percent increase in April as reported by El Norte, meaning the company produced 1.72MMb/d in comparison to 1.675MMb/d the year previous, puts the company in a strong position when supply is fully rebalanced.

Russian Energy Minister Alexander Novak also believes that by July the global supply will have found a new balance. According to Reuters, another minister speaking on behalf of Novak commented that “for now, the surplus stands at around 7-12MMb/d. The energy ministry is counting on the market to balance out in June-July thanks to a consumption increase.”

However, in contrast to the NOC’s rising production, its fuel sales are falling. The impact of COVID-19’s movement restrictions caused the company’s fuel sales to drop by 48 percent in April, reports Economíahoy. April’s MX$12.26 billion (US$550 million) revenue was 70.82 percent less than the same month last year.

The country’s movement towards reopening, which will begin with the three primary industries on June 1, should dramatically improve sales. It should also help reduce oversupply in the country and move in line with predictions from the Russian minister.