Mexico Bails On OPEC+ Deal

Non-OPEC Mexico, which was the surprise holdout in the OPEC+ meeting in April, bailed out of the group’s one-month extension of the record production cuts. But Mexico’s share of the overall 9.7 million bpd cut is negligible and it has already—inadvertently—over-complied with the cuts in May, so the fresh dissent wouldn’t matter much in the big picture of oil supply and demand in the coming months, IHS Markit said on Tuesday.  

Mexico made quite an impact at the April meeting of the OPEC+ group, after disagreeing with proposals that it should reduce its production by 400,000 bpd from its October 2018 baseline, offering only a 100,000-bpd cut. After days of negotiations, Mexico won and its leftist President Andrés Manuel López Obrador said that the United States was ready to help Mexico reach its production cut quota as part of the OPEC+ deal.  

López Obrador has long argued that his ‘Mexico First’ energy policy agenda includes boosting production of the state oil firm Pemex, which has seen continuous declines in output over the past few years, due to insufficient investments in new developments while older oilfields mature.  

This past weekend, Mexico refused to join the one-month extension to the record cuts until the end of July, with Energy Minister Rocio Nahle saying on Twitter that Mexico remains available for discussions, but it would stick to the original deal from April, which envisaged easing the record cuts after the end of June.

“There are other countries that extended their cuts to July, in this case we said no, we’ll stick to the agreement that we signed in April,” Nahle told reporters, as carried by Reuters. “There’s no problem,” she added.

Even with its fresh refusal to sign up for more cuts, Mexico isn’t making much of a difference, Fotios Katsoulas, Liquid Bulk Principal Analyst, Maritime & Trade, at IHS Markit said today.

Mexico has only pledged 100,000 bpd in cuts under the OPEC+ deal—a tiny portion of the 9.7 million bpd collective reduction. In addition, Pemex’s output was just 1.53 million bpd in May, around 123,000 bpd lower than the 100,000 bpd cut agreed at the OPEC+ deal, Katsoulas noted.

Meanwhile, data from IHS Markit Commodities at Sea showed that Mexico’s crude oil shipments dropped in May to their lowest level so far this year—to below 900,000 bpd, down by 32 percent year-on-year. Despite the overall slump in Mexico’s crude exports, shipments to the U.S. in May represented the highest share of Mexican seaborne crude exports so far this year—67 percent, compared to an average of 51 percent this year and 42 percent in 2019, IHS Markit data showed.  

By Tsvetana Paraskova for Oilprice.com

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