Mexico complicates OPEC + agreement with its proposal

Mexico complicates OPEC + agreement with its proposal

On Thursday, the Organization of Petroleum Exporting Countries and allies (OPEC +) agreed to end the market share war and make deep cuts to oil production. A weeks-long war put further pressure on prices that were already reeling from the biggest demand collapse in history due to the coronavirus crisis.


One sticking point to finalizing the deal was Mexico’s refusal to constrain its production substantially. The Mexican government has proposed cutting oil production by 100,000 barrels a day over the next two months. The number is below what was expected.

Rocío Nahle García, Mexico’s Energy Minister, left the online meeting before it concluded in the early hours of Friday morning.

AMLO's administration is holding Mexico back

The oil group reported that all countries reached an agreement. They decided to cut 10 million barrels per day initially, except for Mexico. The oil agency added in a statement that the deal was subject to the consent of Mexico. 


Later, the Secretariat of Energy of Mexico, reported that it proposed the cut of 100,000 barrels. Rocío Nahle tweeted that she suggested a reduction of less than 10 percent of the country’s output. Mexico will reduce production to 1.681 million BPD from 1.781 million BPD, published in March 2020.


Mexico plans to increase oil production


S&P Global Platts, a provider of energy analysis, reported that the agreement to cut world production by 10 million barrels per day is at risk. Mexico’s withdrawal from the virtual dialogue caused Saudi Arabia to threaten to withdraw. Moreover, they threatened to reactivate its market war, according to sources involved in the talks.


Each country that makes up the meeting would lower its production by 23% to the levels of October 2018. Except for Saudi Arabia and Russia, which would leave their extraction levels at 8.5 million barrels per day from a base of 11 million.

Yet, Mexico opposed lowering its oil platform to 1,353 million barrels over an energy investment package. This is to help Pemex raise its production to 2 million barrels by the end of 2020.


Reuters news agency reported that OPEC ministers and allies were working to convince the Mexican government to join the agreement to cut production. Energy representatives are trying to persuade the country to cut its oil platform by 400,000 barrels per day, based on the reported level of production in October 2018.

Analysts think the 10 million barrel deal is much lower than the market needs right now. Bjornar Tonhaugen, an analyst at consultancy Rystad Energy, said that OPEC + producers struggle to reach an agreement. Thus, dragging the negotiations more than expected.


Last Sunday, López Obrador, the president of Mexico, announced that Mexico would increase crude oil production in the country’s six refineries. Still, these only make up 30 % of their capacity.


Mexico has collaborated with the group since 2016. The country has targeted boosting production after years of decline. Analysts think it is unlikely Mexico’s absence will hinder the deal. However, it could lead to Mexico’s expulsion from the alliance.

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