Energy ministers from the Group of 20 (G20) major economies neared a final deal on April 10 to slash oil production in a bid to stabilize the global oil market shaken by the coronavirus pandemic and a supply glut.
The G20 talks, hosted via teleconference by top exporter Saudi Arabia, come a day after overnight marathon discussions by the OPEC+ group that would see the cartel and its allies cut output by about 10 million barrels a day in May and June, or about 10 percent of global supply. Additional cuts would continue until April 2021.
But the OPEC+ group -- composed of representatives of the OPEC cartel, Russia, and other oil-producing countries -- faced resistance from Mexico over demands it cut 400,000 barrels per day. Any deal hinges on Mexico’s approval.
On April 10, Mexican President President Andres Manuel Lopez Obrador said he had reached an agreement with U.S. President Donald Trump to cut production by 100,000 barrels per day following a phone call.
He added that Trump had agreed to cut U.S. production by 250,000 barrels per day "as compensation" for Mexico.
Speaking later in Washington, Trump said the United States would "help Mexico along."
"We'd make up the difference; they would reimburse us at a later date," he said.
While the United States is not in the OPEC or OPEC+ groups, Trump has been actively pushing for oil-output cuts, speaking in recent days with the Russian, Saudi, and other oil-producing leaders.
OPEC+ is expecting an additional cut of 5 million barrels per day to come from other oil producers including the United States, which is the world’s largest oil producer.
The United States, however, has been reluctant to agree to participate in a cut to prop up prices. Many producers believe a mandated cut would violate U.S. antitrust laws, and Washington has said U.S. output was already falling due to low prices.
The price of a barrel of Brent crude, the international benchmark, has dropped to just over $31 from about $66 in January as a result of a drastic decline in economic activity amid the coronavirus pandemic and the breakdown of a previous OPEC+ deal between Russia and Saudi Arabia in March.
"Today’s oil crisis in a systemic shock that threatens global economic and financial stability," International Energy Agency Executive Director Fatih Birol said in a statement on April 10.
The end of the deal in March saw Russia and Saudi Arabia announce major supply increases in a fight over market share at a time of plummeting demand. The Russian and Saudi move was in part driven by a desire to hit indebted U.S. shale-oil producers who have gained market share and whose production costs average around $50 per barrel.
While an 18-year-low in oil prices is good for consumers, they have devastated oil companies and left yawning budget holes and tumbling currencies in major oil producers from Central Asia and Russia to the Middle East and Africa.
Oil-industry experts have said even an agreement to cut production by 10 million barrels per day won't be enough to stabilize the market because current oversupply is just weeks away from filling up the world's storage facilities.
"The proposed 10 million bpd cut by OPEC+ for May and June will keep the world from physically testing the limits of storage capacity and save prices from falling into a deep abyss, but it will still not restore the desired market balance," the Rystad Energy research firm said.