Global Oil Supply: G20 Backs OPEC+, Mexico Unwilling
United States, Canada and other G20 nations are backing the OPEC+ group of countries in a broad effort to reduce global oil supply and restore stability to the oil and gas markets. But Mexico reportedly refused to commit to its share of cuts agreed by OPEC+ during its virtual meeting last weekend.
According to the production cuts agreed by OPEC members, Russia and other members of the Declaration of Cooperation, Mexico has been asked to cut 400,000 barrels per day from May to June. Mexico, though, has refused, as President Andrés Manuel López Obrador is pushing the national oil company, Pemex, to revive the country’s economy and energy sector.
A report said the overall agreement is now in jeopardy, with Saudi Arabia saying the OPEC+ deal, which cuts a total of 10 million barrels of oil per day from the market, is contingent on Mexico’s participation. Mexico has agreed to cut just 100,000 barrels of oil per day. There are reports that President Donald Trump has agreed for the United States to potentially shoulder the rest of Mexico’s needed cuts. Negotiations with Mexico are set to continue on Saturday.
An agreement, reached Friday during a virtual meeting of the G20 energy ministers, will see G20 members coordinate efforts to stem the hemorrhaging of the oil and gas sector, as well as create a task force to monitor actions moving forward. A statement released by the G20, however, does not include a specific amount G20 members will cut from daily production. Previously, OPEC+ had said they would push G20 members to cut an additional 5 million barrels of oil per day. Though the United States did not agree to regulating a set production cut for American shale, it expects to see a reduction of at least 2 million barrels per day. Russia and Saudi Arabia had been set on US participation in production cuts to end their own oil price war, which started in March, but Saudi Arabia said they also recognized the limitations for US and Canada in regulating oil cuts on producers because of legal constraints.
“Without sufficient and stable investment to develop and maintain energy infrastructure, our collective energy security is at risk,” said Prince Abdel Abdulaziz bin Salman, the Saudi energy minister, at the virtual meeting.
“We have already started to see this playing out along the supply chain, as companies experience economic pain, capital expenditures are cut, and jobs are lost. … Our global energy systems, from producers to consumers, is in uncharted territory and it is our responsibility to find the path forward.”
The G20 has not released set obligations or numbers for the production cuts by country. Still, backing the agreement is a radical shift for Western nations, which have avoided dealings with OPEC and have historically shown strong animosity to the group. In the past, the United States has even threatened to pass bills such as the No Oil Producing and Exporting Cartels Act, which could see the United States sue OPEC members for price fixing.
But in a shocking about-face in recent weeks, as the oil and gas crisis threatened the United States’ own energy security, President Donald Trump has urged OPEC and Russia to reach a deal, seeming to alternate between cajoling and threatening the two global powers to strike an agreement on cuts.
The OPEC++ deal came after OPEC, Russia and other members of the Declaration of Cooperation agreed Thursday — after a marathon meeting — to the largest production cuts in the history of OPEC. The OPEC+ group agreed to eliminate 10 million barrels of crude per day for an initial two-month period to save a glutted oil market. The deal sees Russia and Saudi Arabia absorbing the brunt of the cuts, each agreeing to cut 2.5 million barrels per day.
Except for Saudi Arabia and Russia, the baseline for cutting production is taken from October 2018 production levels, with each nation in OPEC+ expected to cut 23% of daily production from this baseline.