The US and the G20 called on the world’s leading countries to take all the necessary measures to stabilize an energy industry devasted by the Coronavirus pandemic, giving unprecedented international backing to deep oil production cuts pledged by OPEC and Russia.
Global oil demand has fallen by about a third after some of the leading economies in the world virtually shut down, to try to halt the spread of the virus, driving crude oil prices to their lowest in 18 years and threatening millions of energy sector jobs around.
The world moved closer to deal to rescue crude markets from a coronavirus-induced collapse after U.S. President Donald Trump stepped in to broker a truce. He praised the pact reached by Russia and Saudi Arabia and seems to have forced Mexico into accepting the deal.
Nigeria, brought to its knees by the devastating collapse in crude oil sale, has said it will support the deal which could bring down production in Africa’s biggest producer to about one million barrels a day, a 50% cut.
An unprecedented cut of about 10% in worldwide crude production — which seemed unlikely last week when Trump first floated the idea in a tweet – is now all but certain, with Mexico the last holdout in the OPEC+ coalition.
Now, a compromise backed by Trump will be discussed between the Latin American country and Saudi Arabia on Saturday. Russia has already said it considers the plan a done deal.
The survival of thousands of crude producers, millions of jobs and the economies of oil-dependent nations are hanging in the balance as the global pandemic wipes out demand in a world awash with crude.
There appears to be something in the deal for everyone. President is concerned because everal U.S. shale producers are on the brink of bankruptcy, and Russia risks having no place to store its crude, and for all their low-cost production while the Saudis need higher prices to fund the kingdom’s budget.
So, after Trump held calls with Russia’s Vladimir Putin and Saudi King Salman Bin Abdulaziz over the past days, the two rivals were ready for a deal at an OPEC+ virtual meeting on Thursday, followed by a Group of 20 video conference on Friday.
And that meant getting over their grudge over Trump’s stance that America’s contribution would be in the form of cuts that have already started to happen naturally over time as explorers adjust to the crisis.
Then Mexico attempted to throw a spanner in the whole process.
Mexico’s Energy Minister Rocio Nahle didn’t budge from her insistence that the country could only cut output by 100,000 barrels a day, 300,000 less than its fair share of 23% reductions by everyone in the OPEC+ group.
On Friday morning, Mexican President Andres Manuel Lopez Obrador said he had resolved the matter in a phone call with Trump. The U.S. would make an additional 250,000 barrels a day of cuts on Mexico’s behalf.
Trump said he had agreed to “help Mexico along” in making a deal with Russia and Saudi Arabia. The U.S. will make up the difference, he said Friday after a call with AMLO on Thursday. He suggested output cuts American producers have only started making to weather the price crash could be counted toward Mexico’s share of the pact.
“We are trying to get Mexico, as the expression goes, over the barrel,” Trump said in a White House news conference on Friday.
The shale boom that turned the U.S. into the world’s largest oil producer is unraveling fast. Last week, the country’s production fell by 600,000 barrels a day from a near-record 13 million as shale explorers idle rigs in the Permian Basis of West Texas and elsewhere in the country. That’s almost the equivalent of wiping out Venezuela’s current output.
Oil traders are sceptical about the production deal but Ann-Louise Hittle at Wood Mackenzie, said “even if poorly implemented, this agreement is substantial and will make a difference to the market.”
