CAPE TOWN/South African: In an historic effort to power the oil and gas industry out of its worst tailspin in its 100-year history, the United States, Canada and other G20 nations are backing the OPEC+ group of countries in a broad effort to reduce global oil supply and restore stability to the oil and gas markets.
This may not be possible, as in a shocking turn, Mexico has refused to commit to its share of cuts agreed by OPEC+ on Thursday. According to the production cuts agreed by OPEC members, Russia and other members of the Declaration of Cooperation, Mexico has been asked to cut 400,000 barrels per day from May to June. Mexico, though, has refused, as President Andrés Manuel López Obrador is pushing the national oil company, Pemex, to revive the country’s economy and energy sector.
The overall agreement is now in jeopardy, with Saudi Arabia saying the OPEC+ deal, which cuts a total of 10 million barrels of oil per day from the market, is contingent on Mexico’s participation. Mexico has agreed to cut just 100,000 barrels of oil per day. There are reports that President Donald Trump has agreed for the United States to potentially shoulder the rest of Mexico’s needed cuts. Negotiations with Mexico are set to continue on Saturday.
An agreement, reached Friday during a virtual meeting of the G20 energy ministers, will see G20 members coordinate efforts to stem the hemorrhaging of the oil and gas sector, as well as create a task force to monitor actions moving forward. A statement released by the G20, however, does not include a specific amount G20 members will cut from daily production. Previously, OPEC+ had said they would push G20 members to cut an additional 5 million barrels of oil per day.
Though the United States did not agree to regulate a set production cut for American shale, the country is expecting to see a reduction of at least 2 million barrels per day. Some models even predict losing 3 million barrels per day, said US Energy Secretary Dan Brouillette at the meeting.
“Make no mistake: Today’s crisis transcends the interests of any one nation and requires a swift and decisive response from us all. Failure to act has far reaching consequences to each of our economies,” he said.
Additionally, he said, the United States is “taking action to open our Strategic Petroleum Reserve to store as much oil as possible. This will take surplus oil off the market at a time when commercial storage is filling up and the market is oversupplied.”
Though Russia and Saudi Arabia were set on US participation in production cuts to end their own oil price war, which started in March, Saudi Arabia said they also recognized the limitations for US and Canada in regulating oil cuts on producers because of legal constraints.
“Without sufficient and stable investment to develop and maintain energy infrastructure, our collective energy security is at risk,” said Prince Abdel Abdulaziz bin Salman, the Saudi energy minister, at the virtual meeting. “We have already started to see this playing out along the supply chain, as companies experience economic pain, capital expenditures are cut, and jobs are lost. … Our global energy systems, from producers to consumers, is in uncharted territory and it is our responsibility to find the path forward.”
The G20 has not released set obligations or numbers for the production cuts by country. Still, backing the agreement is a radical shift for Western nations, which have avoided dealings with OPEC and have historically shown strong animosity to the group. In the past, the United States has even threatened to pass bills such as the No Oil Producing and Exporting Cartels Act, which could see the United States sue OPEC members for price fixing.
But in a shocking about-face in recent weeks, as the oil and gas crisis threatened the United States’ own energy security, President Donald Trump has urged OPEC and Russia to reach a deal, seeming to alternate between cajoling and threatening the two global powers to strike an agreement on cuts.
