Oil prices dipped into sub-$24 per barrel territory on Friday ahead of a G20 summit, as doubts grew that producers could hammer out concerted global cuts to production.
The night before, OPEC kingpin Saudi Arabia and allied Russian-led producers failed to seal a 10 million barrel per day cut sought by US President Trump.
Mexico threw a wrench into the planned joint action. Mexican Energy Secretary Rocio Nahle said her country would be willing to shave off only 100,000 bpd for the coming two months, not the 400,000 outlined in the agreement.
“The agreement is conditional on the consent of Mexico,” an OPEC readout said.
The failure of OPEC+ to cement a deal sparked a three-way call between US President Donald Trump, Saudi King Salman and Russian President Vladimir Putin before dawn in Riyadh.
“We had a very good talk, let’s see what happens,” Trump told reporters, expressing confidence US shale would find relief, and making no mention of Mexico.
The lone ranger
The US and Mexican energy secretaries will come face-to-face via webinar on Friday when the G20 states gather under Saudi auspices.
The failure of OPEC+ to cement a deal will put the spotlight on the United States, now the world’s top oil producer, at the G20.
Trump has suggested that a natural drop-off in production should be a sufficient contribution to global cuts. Russia has made clear, however, that it will be looking to the US to do its part in implementing global cuts.
“Trump will try to pressure Mexico … and in that process we might see pressure from OPEC+ and the G20 on the US to clamp down on production,” a Gulf-based economist told Asia Times.
With Russia and Saudi Arabia already having announced cuts of their own, “these smaller states are going to play the hot potato game,” he added.
States like Mexico, “don’t produce much so they will look to cut production at a rate or percentage less than everyone else.”
And by cutting a smaller percentage than everyone else, “they effectively gain market share and enjoy free rider privileges,” he said on condition of anonymity.
Oil analyst Peter Volkmar pointed out that Mexico’s reservation price, or the minimum they need to sell a barrel at, is “higher than anyone else.”
“I think the G20 will be a lot people figuring out how much everyone else is able and willing to cut,” he told Asia Times.
Smaller producers like Mexico may be sensing an opportunity to benefit from the cuts while maintaining their own production.
Kazakhstan and Brunei were also on the fence at OPEC+ before being corralled in line by Saudi Arabia and Russia, according to Amena Bakr for Energy Intelligence.
The Covid-19 pandemic in recent weeks has brought international air travel to a near-standstill and hobbled manufacturing and other oil-consuming sectors around the world.
The global economic brake has been compounded by the past month’s price war between Russia and Saudi Arabia, which resulted in a cascade of oil even as global demand was dropping off.
Rystad Energy warned the global glut could reach 25 million barrels per day by April, rendering even a 10 million bpd cut less than sufficient to bolster prices.