Energy ministers of G20 countries are holding a virtual meeting on Friday against the backdrop of difficult negotiations to achieve a massive drop in oil production, and Mexico’s announcement of an agreement with Washington could unblock the situation.
Due to the confinement of half the world’s population to limit the pandemic of the new coronavirus, demand for oil is in free fall, even though supply was already in surplus.
In a statement Friday morning, the Organization of the Petroleum Exporting Countries (OPEC) spoke of a prior agreement on a reduction in world supply – by 10 million barrels of crude per day (mbd) in May and June. It was obtained during a meeting which ended early Friday morning from the main oil producing countries, including Russia, which is not a member of the cartel but the world’s second largest producer and leader of the cartel partners.
But Mexico, a non-OPEC member country, did not give its approval, which is essential to ratify the agreement at this meeting. Mexico City indeed found the effort demanded of it excessive (production reduction of 400,000 barrels per day), compared to other countries.
United States-Mexico Agreement
A few hours later, Mexican President Andrés Manuel Lopez Obrador said he had reached an agreement with his American counterpart, Donald Trump, to reduce oil production in his country.
He specified that Mexico was going to reduce its pumping by 100,000 barrels per day (bd) and that the United States was going to reduce theirs by 250,000 bd more compared to their previous commitments to compensate for the Mexican share .
Donald Trump confirmed on Friday that the United States has agreed to help Mexico reach its quota to reduce oil production in order to reach a global agreement for producing countries and curb the fall in prices. “We agree to lower production. And they agree to do something to compensate us in the future, ”he said.
The American president suggested that he had agreed to lower American production by 250,000 barrels per day, as his Mexican counterpart affirms, but not without stressing: “We have already done so”.
It remains to be seen whether OPEC and its partners will accept the American-Mexican agreement at the meeting of G20 energy ministers, organized by Saudi Arabia, the world’s leading oil exporter.
Trump and Putin talk
According to the White House, Donald Trump discussed with his Russian counterpart Vladimir Putin on Friday “the latest efforts to fight the coronavirus pandemic and maintain stability in the global energy markets”, without further details.
At the G20 meeting, Russian Minister of Energy Alexander Novak urged his counterparts to act in a spirit of “partnership and solidarity”, according to local television.
“Stability required”
International Energy Agency (IEA) executive director Fatih Birol said he hoped Friday’s meeting of G20 energy ministers, hosted by Saudi Arabia, the world’s largest oil exporter, could give rise to “stability if necessary in the oil markets”. “The extreme market volatility is hurting the global economy when we can least afford it,” he said.
The withdrawal of 10 mbd in May and June, then of 8 mbd from July to December, would be mainly supported by Saudi Arabia and Russia, but at least twenty other countries should participate in the effort, according to the Bloomberg agency.
End of the price war
To organize the extraordinary meeting of the main producing countries, Ryad and Moscow put an end to the price and market war that they had started after their last conference, on March 6 in Vienna. Moscow had slammed the door of OPEC (bringing together OPEC and its allies) and Ryad had opened the gates and sold its oil to Europe.
But the two countries were surprised by the rapid spread of the coronavirus, which penalized demand at a time when the supply of crude was in excess.
“Our global energy system, from producers to consumers, is in unknown territory and it is our responsibility to see how we can move forward,” said Saudi Minister of Energy, Prince Abdelaziz ben Salman, during the G20 meeting. “Saudi Arabia urges all G20 members, including Mexico, as well as the invited countries, to take appropriate and extraordinary measures to stabilize the market,” he added.
While still hovering around $ 60 a few months ago, oil prices reached levels seen at the beginning of last week since 2002. The price of oil per OPEC basket is just above of 21 dollars.
“Act now”
At the meeting, OPEC secretary general Mohammed Barkindo warned that crude storage capacity would run out before the end of May due to an oversupply and “incredible” drop in demand. “We must act now, in order to get out of this pandemic while keeping the strength of our industry intact,” he added.
Even if agreed, several analysts say they doubt the ability of producers to support prices. “A reduction of 10 million barrels per day in May and June will prevent reaching storage limits and will prevent prices from falling into an abyss, but it will still not restore the desired market balance”, according to Rystad Energy analysts.
Desirous of forging the widest possible coalition, OPEC has, for the first time, invited producer countries outside its alliance.
The United States, although invited, cannot participate directly because of its severe anti-monopoly regulations. The country, which is also not a member of OPEC, wants a reduction in supply to stabilize prices and restore air to its shale oil industry, in great difficulty. An OPEC meeting is scheduled for June 10. (dpa / nxp)
Created: 04/10/2010, 21h59
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