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Oil prices rose this week…

Mexico Offers To Mediate In Oil War

Mexico is ready to act as mediator between Saudi Arabia and Russia who turned from partners to opponents on Friday when Russia quit the OPEC+ production cuts. In response, Saudi Arabia announced it was cutting the prices of its oil and planning a production boost.

“We along with some other countries are looking to be a type of third party to build bridges,” Mexico’s Finance Minister Arturo Herrera told media, as quoted by Reuters.

Mexico has previous experience with OPEC-related mediation, Reuters recalls. Back in 1998, it brokered talks between Saudi Arabia and Venezuela who were at odds about production at the time and they struck an agreement that led to higher prices.

Whether it would be successful now remains an open question. Russia said it was going to stop complying with OPEC+ production quotas from next month on Friday. Saudi Arabia responded with an announcement it would cut its official selling prices for oil by between $6 and $8 a barrel, also from April. It went on to say it would increase oil production by close to 3 million barrels daily next month.

The Kingdom, which is currently producing less than 10 million bpd of crude, said it would raise its output to 12.3 million bpd in April. In evidence that the move is aimed to cause the greatest pain, the figure is 300,000 bpd above Saudi Arabia’s current production capacity, which means it would be using oil from storage to flood the market.

Related: Big Oil Prepares To Suffer In 2020

Oil tanked on the news but since Monday has been regaining ground on positive news such as plans for economic stimulus in the United States and elsewhere in response to the coronavirus epidemic, and reports of the outbreak slowing down in China, its country of origin.

However, the chances of prices rising anywhere near to where Gulf producers and Saudi Arabia need them to be without curbing production are zero. This means that short of an actual war, the Kingdom has no other choice but to pursue the path it took this weekend and stifle competition with excessive—and cheap—output.

In this situation, and amid still depressed oil demand, it is questionable whether any mediation would be successful.

By Irina Slav for Oilprice.com

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