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Markets

Mexico says US to help it make oil cuts aimed at global reduction

Lopez Obrador said Mexico, which is an OPEC ally, had been pressed to make cuts of 400,000 barrels per day (bpd), b
10 Apr 2020
  • Lopez Obrador said Mexico, which is an OPEC ally, had been pressed to make cuts of 400,000 barrels per day (bpd), before the group lowered the target to 350,000 bpd.
  • "President Trump said the United States committed to reducing by 250,000 (barrels), on top of what it was going to do, for Mexico, in order to compensate," he said.

MEXICO CITY: The United States agreed on Thursday to make 250,000 barrels per day in additional cuts to oil output to help Mexico contribute to global reductions, Mexican President Andres Manuel Lopez Obrador said on Friday.

During marathon talks on Thursday inside the OPEC+ group, oil producers agreed to make cuts equivalent to around 10% of global supplies, but Mexico balked at the initiative.

Speaking at a regular news conference, Lopez Obrador said Mexico, which is an OPEC ally, had been pressed to make cuts of 400,000 barrels per day (bpd), before the group lowered the target to 350,000 bpd.

Lopez Obrador, who has made increasing oil output one of the priorities of his administration, said US President Donald Trump had spoken to him on Thursday and offered to help before Mexico announced it would cut output by 100,000 barrels per day.

"President Trump said the United States committed to reducing by 250,000 (barrels), on top of what it was going to do, for Mexico, in order to compensate," he said.

Lopez Obrador suggested the US leader had initiated the conversation, saying, "President Trump got in touch with us."

The White House did not immediately reply to a request for comment on Lopez Obrador's remarks.

Lopez Obrador's announcement of US cuts came as a surprise, given Trump's past reluctance to ask for coordinated cuts by US oil producers.

Still, US Energy Secretary Dan Brouillette said on Friday, "It is a time for all nations to seriously examine what each can do to correct the supply/demand imbalance."

Brouillette said in prepared remarks for Friday's Group of 20 meeting of energy ministers, "We call on all nations to use every means at their disposal to help reduce the surplus."

George Baker, a Texas-based oil analyst, said Trump may have calculated that with crude output likely to decline sharply in the near term because of the economic impact of the coronavirus outbreak, he did not have much to lose in making such a pledge to cut output.

Global output cuts that stabilize prices are likely to provide some relief to US shale producers, some of which risk being pushed out of the market unless prices recover.

By helping Lopez Obrador, it could make it easier for Trump to apply pressure on Mexico in due course should illegal border crossings spike again due to the economic turmoil, added Baker, the publisher of Mexico Energy Intelligence.

Trump has made cutting illegal immigration across the US-Mexico border a top priority, and has pushed Mexico into taking a series of measures to toughen up policing of the frontier and to cope with a surge in migrants trying to apply for US asylum.

Lopez Obrador said Mexico resisted making deeper cuts because the country has gone to great lengths to reverse years of declining output at state oil firm Petroleos Mexicanos.

During their call last night, Trump marveled at how Mexico was the only holdout to the deal, Lopez Obrador said.

"When I told him that it was 100,000 (barrels) and we couldn't do any more, he very generously said to me that they were going to help us with the additional 250,000 to what they are going to contribute," he said. "So for that I thank him."

Normally, any coordinated decision by US oil producers to reduce output to boost prices would violate antitrust laws. But legal experts have said that if the federal government leads the charge such an effort would arguably be legal.