Top oil producers except Mexico agree to cut output

Agreement to support prices depends on Mexico's consent for it to take effect: Opec

Flames from flare stacks at Nahr Bin Umar oil field, north of Basra, Iraq, on March 9. Oil prices have been wallowing near two-decade lows due to the coronavirus pandemic and a Saudi-Russian price war. PHOTO: REUTERS
Bankers increasingly reluctant to give commodity traders in Asia the credit they need to survive after anxiety has reached new heights in recent days as fabled Singapore oil trader Hin Leong Trading struggles to repay debts said to amount to $5.5 billion. PHOTO: REUTERS

LONDON • Major oil producers except Mexico agreed to cut output next month and in June by 10 million barrels per day (bpd), Opec said yesterday, after marathon talks to counter a collapse in prices.

The agreement, which reduces production to eight million bpd from July to December, depends on Mexico's consent for it to take effect, the oil cartel said after a video-conference.

The virtual meeting of the Organisation of the Petroleum Exporting Countries (Opec) members and their Opec+ allies including Russia, as well as other key non-members, started on Thursday. Talks dragged on into the small hours of yesterday.

It was seen as the best chance of providing support to prices, which have been wallowing near two-decade lows due to the coronavirus pandemic and a Saudi-Russian price war.

Bloomberg News reported that the main sticking point was the refusal of Mexico to sign up to its share of cuts under the deal, which would have been 400,000 bpd.

Mexican Energy Minister Rocio Nahle Garcia tweeted that her country had suggested a cut of 100,000 bpd.

Venezuela's state oil company PDVSA said in an earlier statement that Caracas "supports the proposal of Saudi Arabia and Russia to reduce production by around 10 million bpd".

At the beginning of the meeting, Opec secretary-general Mohammad Barkindo warned that the rapid economic damage wrought by the virus meant that the industry's "supply and demand fundamentals are horrifying".

"Our industry is haemorrhaging; no one has been able to stem the bleeding," Mr Barkindo said, bemoaning companies already filing for bankruptcy and tens of thousands of jobs that have been lost.

Another virtual meeting is scheduled for June 10 "to determine further actions, as needed, to balance the market", Opec said.

"The extraordinary producing-countries meeting is the only hope on the horizon for the market that could prevent a total price collapse," said Rystad Energy head of oil markets Bjornar Tonhaugen.

Saudi Arabia will on Friday host a separate virtual gathering of energy ministers from the G-20 group of major economies in a similar bid to ensure "market stability".

Oil prices have slumped since the beginning of the year as the pandemic sends large parts of the planet into lockdown and brings the global economy to a virtual standstill.

Compounding the problem, Riyadh and Moscow have both ramped up output in a bid to hold on to market share and undercut United States shale producers.

"Saudi Arabia and Russia have been extremely clear that they will cut production if - and only if - other major oil producers join in as well," said SEB oil analyst Bjarne Schieldrop.

While the US is not in the Opec or Opec+ groups, it is supportive of a reduction in supply in order to stabilise prices and breathe new life into its shale industry.

Shale has transformed the nation into the world's top producer, but the industry cannot sustain its high cost base as prices collapse.

Yet the US oil sector appears reluctant to trim production, having extracted a near-record 13 million bpd in the final week of last month. This fell to 12.4 million bpd last week.

At the same time, the global supply glut - already weighing on oil markets before the coronavirus crisis - has stretched oil storage capacity to its limits, forcing many producers to scale back output.

In his opening statement to the meeting carried by the Rossiya 24 channel, Russian Energy Minister Alexander Novak welcomed the presence of several nations outside the Opec+ alliance, namely Canada, Norway, Argentina, Colombia, Egypt, Indonesia, Chad, Ecuador and Trinidad and Tobago.

The International Energy Agency warned last Monday that the world is set for its first annual decline in oil consumption in more than a decade because of the pandemic.

The global oil glut could reach 25 million bpd this month, according to Rystad Energy.

AGENCE FRANCE-PRESSE

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A version of this article appeared in the print edition of The Straits Times on April 11, 2020, with the headline Top oil producers except Mexico agree to cut output. Subscribe