A historic production reduction agreement between OPEC and its allies, known as OPEC +, hit a roadblock after Mexico refused to accept its share of the cuts after a marathon meeting between the countries oil producers that lasted more than nine hours.
The rest of OPEC +, led by Saudi Arabia and Russia, agreed earlier today to cut 10 million barrels a day offline as the coronavirus pandemic undermines demand for crude oil. But after Mexico resisted its allocation, the meeting ended without a final agreement. Discussions are now set to continue on Friday, according to a Bloomberg report citing sources close to the talks.
The special meeting started around 10:30 am ET and continued into the evening.
After the meeting, Mexican Energy Secretary Rocío Nahle said in a tweet that the country would be willing to cut production by 100,000 barrels a day over the next two months. OPEC + would have asked for a reduction of 400,000 barrels a day, according to Reuters.
Earlier, Reuters had announced that the initial cut of 10 million barrels per day would last in May and June, before decreasing to 8 million barrels per day for the rest of the year. From January 2021, cuts are expected to increase to 6 million barrels a day, which would continue until April 22, Reuters said.
The agreement was not conditional on countries outside OPEC + limiting production, which some say could be a stipulation for Saudi Arabia and Russia to cut production. The group, however, called on other producers, such as the United States, to cut production by an additional 5 million barrels a day, according to Reuters.
Despite the record size of the potential decline, oil prices fell on Thursday, with investors worried that this is still not enough to combat the unprecedented loss of demand for the coronavirus.
“While 10 million bpd will help the short-term market not to fill storage, it is a disappointing development for many, who still realize the size of the excess supply of oil,” said oil markets of Rystad Energy, Bjornar Tonhaugen.
The American West Texas Intermediate lost 9.29%, or $ 2.33, to settle at $ 22.76 per barrel. Earlier in the session, the contract had increased more than 12% to a high of $ 28.36. The international benchmark Brent fell 4.14% to $ 31.48, after reaching a peak of $ 36.40.
“Covid-19 is an invisible beast that seems to have an impact on everything in its path,” said OPEC secretary general Mohammad Barkindo at the meeting. “For the oil market, it has completely changed the fundamentals of supply and demand since our last meeting on March 6,” he added.
Earlier, the WTI increased by more than 12%, according to reports that Saudi Arabia and Russia were discussing reductions that could have caused 20 million barrels per day of global production to go offline.
“The market has been disappointed with the proposed production cut of 10 million barrels per day, perhaps due to expectations of a massive reduction of 20 million barrels per day,” said Helima Croft, global manager of commodity research at RBC. “However, we believe that it is crucial to turn off the tap in the midst of a colossal collapse in demand and quickly end the price war,” she added.
Prior to the meeting, the street had been monitoring the cuts of 10 to 15 million barrels a day after Trump said he had spoken to Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman and expected them to announce a agree on this. Cut.
“We are optimistic that they will reach an agreement between the Saudis and the Russians in order to stabilize the markets,” American Energy Secretary Dan Brouillette said on CNBC’s “Squawk Box” on Thursday before the start of the OPEC + meeting. “I think they can easily reach 10 million, maybe even more, and certainly more if you include the other oil producing countries, countries like Canada and Brazil and others. Easily, easily”, a he added.
On Friday, the energy ministers of the Big 20 Economies Group will meet for their own special meeting, which will be attended by Energy Secretary Dan Brouillette.
The G-20 presidency said on Tuesday that the meeting would be “to foster global dialogue and cooperation to guarantee stable energy markets and enable a stronger global economy”.
As for US energy companies, Trump said market forces would prevail and said producers on Wednesday have “already backed down”. Brouillette echoed this on Thursday, telling CNBC that “the slowdown in demand has caused production in the United States to drop by around 2 million barrels per day, the 2020 recall thinks.”
Oil price crater
At the last OPEC meeting in early March, the de facto leader in Saudi Arabia proposed cuts of 1.5 million barrels per day to help curb falling demand. But Russia, an OPEC ally, rejected the proposal, triggering a price war between the two producers. Saudi Arabia cut oil prices to gain market share and also increased production to record levels above 12 million barrels a day.
Since the beginning of March, the outlook for oil has radically changed with the spread of the pandemic, with a large part of the world now staying at home. Oil prices have dropped to their lowest level in almost two decades. WTI and Brent both fell more than 50% in March for their worst month on record. The first quarter was also the worst in history, with WTI losing 66% while Brent falling 65%.
In the midst of the decline, which put pressure on highly leveraged U.S. oil companies, Trump sought to negotiate a deal between Saudi Arabia and Russia. Trump told CNBC on April 2 that he had spoken to Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman and expected them to announce a record reduction in production.
American drillers continue to pump near record levels as the world reaches the limit of its capacity to store oil. The US oil industry is divided over whether it could or should contribute to production cuts in order to stabilize prices.
The American oil industry opposes the cuts, saying that such a move would harm the American industry. In Texas, however, Ryan Sitton, one of three members of the Texas Railroad Commission, said that the state was considering participating in such an agreement.
– Sam Meredith and Nate Rattner of CNBC contributed to the report.