What OPEC’s New Goals Could Mean for Mexico

Earlier this month, OPEC announced it would be raising its expectations for oil demand in 2021, forecasting the waning of the COVID-19 pandemic and the subsequent economic recovery, as stated by Reuters. As OPEC states in its monthly oil market report, “oil demand in the second half of 2021 is projected to be positively impacted by a stronger economic rebound than assumed last month, supported by stimulus programs and a further easing of COVID-19 lockdown measures, amid an acceleration in the vaccination rollout, largely in the OECD region.”

With this projected increase in demand, supply-side measures that have been in place since last year will need to be relaxed. OPEC projects demand to rise globally by 5.95 million barrels per day this year, a nearly 7 percent increase from 2020. As for Mexican production, OPEC said it expects output to average 1.94 million barrels per day in the second half of 2021, as reported by Natural Gas Intelligence. This change in output demand comes at a time when Mexico’s president intends to keep production under 2 million barrels a day, as needed to cover internal fuel market demand, as stated by Forbes. 

It’s also worth noting that PEMEX has seen a lack of growth that in 2020 translated into a gap of almost 300,000 barrels per day, as stated by Expansion. So far, Mexico has mostly kept its end of the agreement, producing 1.8 million barrels per day and falling short of 75,000 barrels per day, as reported by El Universal. Going forward, PEMEX’s 2021-2025 business plan aims to reduce its extraction targets compared to the 2019-2023 plan, as reported by La Jornada, and keeping extraction at 1.94 million barrels per day. This figure keeps in line with OPEC’s demands.

Mexico’s Energy Minister, Rocío Nahle, also stated that Mexican production has kept in line with agreements, as reported by Argus Media here and here. Extraction remains an uncertainty, as Mexico struggles to restore normal output levels from 2020. Financial and operational restrictions and a series of weather events and accidents in the second half of last year have also put pressure on PEMEX. As stated in an issue brief by the Baker Institute for Public Policy, it is paramount that PEMEX starts seeing growth, as it has had a detrimental impact on the national economy, reaching a negative net profit of MX$605 billion (US$30.2 billion) in 3Q2020. In a best-case scenario, Pemex could become an essential input for the economy if oil prices went up dramatically; this would depend on a worldwide recovery that is yet to come. In the real world scenario, prices are decreasing.