Mexico ends oil standoff with OPEC
OPEC deal 'not going to be enough to offset this incredible demand destruction'
Mexican President Andres Manuel Lopez Obrador said Friday that his country will cut its crude oil output by 100,000 barrels per day, joining OPEC and other producers in efforts to stabilize the market.
Lopez Obrador, speaking at his daily press briefing, said President Trump “generously” offered for the U.S. to reduce output by an additional 250,000 barrels a day, according to The Wall Street Journal.
OPEC was hoping Mexico would lower its output by 400,000 barrels a day, and the country's initial delay in joining the pact had jeopardized the arrangement.
"The United States will help Mexico along and they'll reimburse us some time at a later date when they're pepared to do so," Trump said at a press conference on Friday.
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U.S. producers cannot coordinate to lower output because doing so would run afoul of antitrust laws. Governments on the state or federal level would have to “mandate a production cut,” allowing the market to “answer this from a U.S. perspective,” Stephen Shorck, founder and editor of The Shorck Report, told FOX Business.
Ahead of Thursday’s meeting, U.S. producers, including Continental Resources, had already reduced their daily output by a combined 600,000 barrels per day, Shorck said. Still, there has not been an order from the Trump administration to lower production.
The apparent end to Mexico’s standoff would potentially cement a deal between OPEC producers and their allies that would reduce global crude oil output by 10 million barrels a day until July, and initiate a ceasefire in the price war that began last month between Saudi Arabia and Russia.
Both Saudi Arabia and Russia would lower production to 8.5 million barrels a day from their current levels of 12.3 million and 10.9 million, respectively. Mexico, for its part, would reduce its output to 1.68 million barrels, according to the Journal.
Longer-term, the deal calls for output to be reduced by 8 million barrels a day from July through December and by 6 million barrels per day for 16 months beginning in 2021, according to the Associated Press.
“Ten million barrels per day, especially considering you're using that off of the Saudis increased production already, is not going to be enough to offset this incredible demand destruction that we've seen globally because of the virus,” Gifford Briggs, Louisiana Oil & Gas Association president, told FOX Business.
West Texas Intermediate crude oil, the U.S. benchmark, has plunged 45 percent to $22.76 a barrel since Saudi Arabia began its price war against Russia on March 8, after the latter refused to join OPEC producers in cutting output.
In response, Saudi Arabia slashed prices and ramped up its production.
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The price war compounded problems for the crude oil market, where demand was already faltering due to countries around the world issuing “stay-at-home” orders to slow the spread of the COVID-19 pandemic.
"The challenge that we're seeing here in Louisiana, because of the lack of storage, is where you've seen oil for May delivery actually not selling at $25, but selling at $10 a barrel," Briggs said. "And that is well below what our members have indicated to us are necessary for survival and for break-even."