Page 4 - LatAmOil Week 15 2020
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LatAmOil COMMENTARY LatAmOil
Mexico holds fast
on production cuts
OPEC+ group hammers out a new deal after agreeing to let Mexico make a smaller contribution
Mexico resisted pressure to cut oil production by 400,000 bpd (Photo: File)
WHAT:
Mexico will reduce output by 100,000 bpd instead of the requested 400,000 bpd.
WHY:
This year’s Hacienda Hedge has offered the country some insula- tion from oil market fluctuations.
WHAT NEXT:
If the pandemic continues to keep global energy demand down, Mexico’s advantage is likely to erode.
MEXICO, like other oil-producing states around the world, has plenty of reasons to be nervous about the events of the last month.
On the one hand, it has seen global energy demand diminish as a result of the coronavirus (COVID-19) pandemic, which is cutting into global energy consumption. On the other hand, it has seen the value of some of the barrels it does manage to sell sink as a result of the price war that broke out between Saudi Arabia and Russia.
Nevertheless, the Latin American state did seem to have more reason for optimism at the beginning of the week. This was not because of any positive developments on the demand side, as the global public health crisis is still keeping energy consumption levels down. Instead, con- ditions appeared to be improving on the supply side.
Oil prices began plummeting in early March after Russia refused to accept Saudi Arabia’s request to work with OPEC to cut production
by 1.5mn barrels per day (bpd). This refusal effectively ended the three-year-old OPEC+ agreement, which was already keeping another 2.1mn bpd off the market. It also led Russia and Saudi Arabia (and later, other producers such as Nigeria) to increase crude output levels. This, in turn, exacerbated widespread supply gluts and made the situation even worse.
But as reported elsewhere in this issue of LatAmOil, Russia and Saudi Arabia have ended
their quarrel – or have, at least, patched over
their differences enough to hammer out a new OPEC+ deal that will reduce global production
by 9.7mn bpd in May and June, dropping to 8mn
bpd in the second half of the year and again to
6mn bpd between January 2021 and April 2022.
This essay will examine Mexico’s contributions
to this accord, which was hammered out on
April 12 during an extraordinary OPEC meet-
ing that was held by video conference in compli-
ance with social-distancing guidelines.
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w w w . N E W S B A S E . c o m Week 15 16•April•2020