OPEC, Russia but not all its allies have agreed to extend record oil production cuts by a month that will cut up to 9.7 million barrels a day from the global output.
The group, known as OPEC+, made a forlorn demand that countries such as Nigeria and Iraq, which exceeded production quotas in May and June, compensate with extra cuts in July to September.
The chances of that happening are remote, especially with Mexico, which was a reluctant participant in the original agreement, sitting out the extension.
Government ministers in Nigeria and Iraq said they were sympathetic to the extra cuts, but seeing both governments allowed the extra production in May and June, it is hard to see anything coming from those ’sympathies’.
Certainly, both countries’ budgets have been whacked hard by the slump in prices and demand.
OPEC+ had initially agreed in April that it would cut supply by 9.7 million barrels per day (BPD) in May and June to prop up prices that collapsed due to the coronavirus crisis.
Those cuts were due to taper to 7.7 million BPD from July to December.
Under that deal, Mexico said it would cut its crude output by 100,000 BPD in May and June, after resisting pressure from other oil producers to lop 400,000 BPD off its output.
Mexican President Andres Manuel Lopez Obrador, who has committed himself to expanding the country’s crude oil output, said on Friday that Mexico was not in a position to make additional cuts on top of what it had agreed in April.
The country’s energy minister Rocio Nahle confirmed Mexico would not participate in the fresh cuts agreed on Saturday, according to Reuters.
“There are other countries that extended their cuts to July, in this case, we said no, we’ll stick to the agreement that we signed in April,” she told reporters in the eastern state of Veracruz. “There’s no problem,” according to Reuters.
It was not immediately clear whether Saudi Arabia, the United Arab Emirates and Kuwait will extend their extra voluntary cuts of 1.18 million barrels a day beyond the end of June. These additional cuts are not part of the OPEC+ arrangement.
The news will leave oil markets confused. The one-month extension was well known on Friday and helped prices rise sharply.
In New York, West Texas Intermediate crude for July delivery rose $US2.14, or 5.7%, to settle at $US39.55 a barrel. That was after benchmark Brent saw its August contract jump $US2.31, or 5.8%, to end at $US42.30 a barrel in Europe.
But prices fell by 0.5% to 1.5% in after-hours trading and were weak over the weekend as the departure of Mexico from the agreement and the overproduction data became known.
Friday’s news from Baker Hughes of yet another big fall in the number of active US rigs drilling for oil supported prices.
The number of rigs fell by 16 to 206, yet another record low. The total active US (oil and gas) rig count fell by 17 to a new record low of 284, according to Baker Hughes. Both figures are now down more than 70% from a year ago.
