In a twist fit for a blockbuster movie, Mexico has emerged as the decisive player for the OPEC+ production cut deal, according to OPEC.
"The above was agreed by all the OPEC and non-OPEC oil producing countries participating in the Declaration of Cooperation, with the exception of Mexico, and as a result, the agreement is conditional on the consent of Mexico," OPEC said in a press release.
Speaking to Reuters earlier today, Prince Abdulaziz said, "I hope (Mexico) comes to see the benefit of this agreement not only for Mexico but for the whole world. This whole agreement is hinging on Mexico agreeing to it."
The surprising focus on Mexico is a result of the country walking out of the OPEC+ meeting yesterday without agreeing to the production cuts. Another report, however, said Mexico had offered to reduce its crude oil production by 100,000 bpd during the talks, to 1.68 million bpd.
México en el consenso para estabilizar el precio del petróleo en la reunión de la @OPECSecretariat ha propuesto una reducción de 100 mil barriles por día en los próximos 2 meses. De 1.781 mbd de producción que reportamos en marzo del 2020 disminuiremos a 1.681 mbd. @GobiernoMX
— Rocío Nahle (@rocionahle) April 10, 2020
Yesterday, the oil producers' cartel agreed on a 10-million bpd production cut, noting that its members hoped other producers will join in, too, cutting another 5 million bpd in an attempt to rebalance the oil market. Canada and Norway are among the countries that have suggested they would cut while the U.S. has stood firm in its unwillingness to interfere in the oil industry.
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Reuters asked Saudi Arabia's Prince Abdulaziz about that, too.
"They will do it in their own way, using their own approaches, and it is not our job to dictate to others what they could do based on their national circumstances," the energy minister said.
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Texas railroad commissioner Ryan Sitton, the man who first floated the idea of a production cut in the oil state, said in a tweet that the world needs to cut at least 20 million bpd in the next couple of months, adding the U.S. could reduce its output by 4 million bpd in that period without having to impose mandatory production caps.
By Irina Slav for Oilprice.com
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How could such a deal succeed in a market sagging under the weight of a glut estimated at 1.8 billion barrels and declining by some accounts at 30 million barrels a day (mbd) with half the population of the world in a lockdown.
The market has given its initial verdict on the deal by oil prices sliding down immediately after the announcement of the deal agreement. Indeed, we will get the market full verdict in the next 72 hours.
No matter how big the cuts are, they will hardly have a positive impact on oil prices whilst the coronavirus is still raging. Any cuts are oil down the drain.
It is far better for countries of the world to implement the strict measures that enabled China to control the outbreak and open the country to business again rather than discussing futile production cuts. This will enable them to shorten the duration of the global lockdown and enable people to resume their normal activities including demand for crude oil.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London