Mexico will only cut crude production for May and June, the energy ministry (Sener) told Argus today, despite the Opec + agreement laying out cuts through April 2022.
"Mexico's 100,000 b/d cut is for May and June and from July Mexico will return to its previous production platform," the energy ministry told Argus.
Following four days of intense negotiations, the Opec+ group agreed a deal to cut production on 12 April. The alliance of Opec and allied producing nations will cut output by 9.7mn b/d between May and June with reductions gradually scaling down to 5.8mn b/d until conclusion of the deal in April 2022.
Mexico agreed to cut only 100,000 b/d, with US president Donald Trump saying that his country would reduce output by 250,000 b/d to compensate. He later indicated the decline would be organic.
Mexico has not promised anything in return for the arrangement with the US, President Andres Manuel Lopez Obrdaor said today.
"The US government does not usually participate in these matters — it argues that we should respect the free market — but on this occasion they wanted to protect US shale producers that have higher costs," Lopez Obrador said.
The cut takes state-owned Pemex's 1.75mn b/d October 2018 output as a baseline from which production will be reduced to 1.65mn b/d for May and June. From July, production will increase to 1.75mn b/d, the energy ministry said today.
Mexico produced 1.64mn b/d in February and hopes to increase output to 1.85mn b/d by year-end.
A further Opec+ meeting is scheduled for June but Mexico has "not yet fixed its position [on further cuts], it will depend on circumstances," the energy ministry said.
"There have been rumors that Mexico will leave the Opec+ group but there is no instruction internally that we will leave," the ministry said.
Inside Mexico, the government is heralding the deal struck over the weekend as a political victory for Lopez Obrador. He has staked his administration on a rebirth of state-owned oil company Pemex, a repudiation of the previous government's 2014 energy reform and a prioritization of domestic needs over international matters.
The Opec+ meeting followed almost a month of turmoil in global crude markets as the coronavirus pandemic pounds demand and a failure between Saudi Arabia and Russia to agree on production restraints threatened to over supply the market. The Mexican crude basket dropped to a 21-year low of $10.37/bl on 30 March but despite the Opec+ agreement, the price has only nudged up to $15.30/bl, just one US dollar above Pemex's $14.33/bl breakeven level.
