Production Increases, Demand Takes a Hit

Oil and gas production has begun the process of being restored to pre-pandemic levels; this applies to both global production and also to Mexican production specifically. According to a report from Milenio, Mexico’s national production reached 1.698MMb/d in March of this year, which is considered remarkably close to the 1.747MMb/d that it reached in March of last year, immediately before pandemic measures and restrictions were enforced by Mexico's government. 

This also represents an increase of 1.9 percent when compared to February’s numbers. Ninety-seven percent of this production came from PEMEX. The lowest production levels during the pandemic so far were reached in July of last year, when national production hit  1.604MMb/d, where a part of this production decrease was agreed upon with OPEC in April and May of 2020. According to a report from Expansión, the latest forecast from the federal government calls for production levels of 2MMb/d to be reached by the end of this year. However, production levels must stay above that benchmark until 2024. Nevertheless, the report goes on to claim that this goal seems quite distant when considered in the context of current PEMEX investments and progress reports.

 This production increase is expected to be reflected at an international level, since OPEC+ issued a press release this week claiming that member states will begin ramping up production again starting in May, according to a report from El Economista. These increases were agreed to after OPEC authorities concluded that the market was stable enough to support them. 

According to another report from El Economista, crude prices began a decrease this week that can be directly tied to the spike in COVID-19 cases currently taking place in India and Japan. Monday saw a decrease in value of both Brent and WTI crude to the order of 1.5 percent. According to investors, this has been directly tied not only to OPEC’s production increases, but also to the decrease in demand represented by Japan and India currently under lockdowns. As Commerzbank analyst Eugen Weinberg stated, “The market has shown a tendency to focus more on the bad news coming out of India and Japan, where the rising number of new COVID-19 cases has increased with great force, which has led to the imposition of higher restrictions on mobility.” India and Japan are, respectively, the third and fourth largest importers of oil products in the world. If these events bring the price of crude down to less than 60 dollars per barrel, it is possible that OPEC will have to revisit its appraisal of the market’s stability.