On Thursday, the Organization of Petroleum Exporting Countries and its non-member allies (OPEC+) had agreed to cut oil output to help balance oil prices globally. However, Mexico later challenged the original cut quota, driving the agreement to a roadblock.
Following the meeting, OPEC+ stated that all the parts of the group have agreed to the quota, with the exception of Mexico. “As a result, the agreement is conditional on the consent of Mexico,” the group said.
In the original agreement, in May and June, the group will cut oil production by 10 million bpd. The cut would then be eased to 8 million bpd between July and December. Meanwhile for January 2021-April 2022. the cut was planned to be eased further to 6 million barrels.
Mexico’s Secretary of Energy Rocío Nahle said that the country would be able to cut output by 100,000 bpd for the upcoming two months.
According to Reuters, Mexico’s cut capability was far below what OPEC+ allocated to the country, a 400,000 bpd cut.
Reacting to the prospect of a sizable output cut, oil prices edged down on Thursday as the markets are pessimistic that the cut would be sufficient to tackle the significant demand loss, affected by the coronavirus pandemic.
Reacting to the meeting’s developments, yesterday, US WTI slumped by 9.29% or USD2.33 to settle at USD22.76/barrel. Earlier in the day, the prices did soar by more than 12% to a session high of USD28.36/barrel as Russia and Saudi Arabia were said to discuss a possibility of 20 million bpd cut.
Brent crude oil went down by 4.14% to settle at USD31.48/barrel. Earlier, the level hit the high of USD36.40/barrel.
Analyst Helima Croft of RBC said that the market was initially expecting a 20 million bpd cut, therefore the 10 million bpd cut agreement underwhelmed it.
OPEC+ will hold another meeting on June 10, likely via a video conference.
Separately, on Friday, the Group of 20 major economies (G-20) will also have their own extraordinary meeting to address the issues in the global energy markets and economy.
