G20 Scrambles to Rescue Global Oil Deal as Cash-Strapped Mexico Holds Out

Energy ministers from the G20 nations will join a teleconference Friday to finalize a tentative and ambitious oil production deal to shelter oil markets ravaged by the coronavirus pandemic.

The multilateral deal, led by record cuts from Saudi Arabia and Russia, would lower oil production globally to stabilize falling prices for Brent crude. But the deal was at an impasse late this week as Mexico refused to sign onto the accord.

On Thursday night all members of the Organization of the Petroleum Exporting Countries (OPEC) agreed to cut 10 million barrels a day in production, a 23 percent reduction of the group's baseline. Mexico, part of the so-called OPEC-plus group, rejected the proposal and instead offered to cut a quarter of the requested amount.

"[Mexico] has proposed a reduction of 100,000 barrels per day in the next 2 months. From 1.781 million barrels per day of production that we reported in March 2020, we will decrease to 1.681 million barrels per day," Rocío Nahle, Mexico's energy secretary, wrote in a message posted to Twitter. Saudi Arabia and Russia, the biggest producers in the group, would each take output down to about 8.5 million a day.

The overall agreement is contingent on Mexico's approval, according to a statement on OPEC's website.

"It is a very fluid situation," Amy Myers Jaffe, senior fellow for energy at the Council on Foreign Relations, told Newsweek. "One key goal of this entire exercise from the United States' point of view is to prevent a meltdown in sovereign credit markets and relieve the pressure on the International Monetary Fund."

Mexico's national oil company, Pemex, has $36 billion in bond payments due in the next four years, meaning it is inflexible in its output and cash earning goals.

Since early March, Moscow and Riyadh have waged a bitter price feud, flooding the markets as the international benchmark produce fell to $23-per-barrel, an 18-year low. President Donald Trump called the oil price war "crazy," while stepping in to partially broker the deal and threaten tariffs on oil imports to protect American jobs.

"The United States as a major ally and trading partner of Mexico wants countries like Saudi Arabia to act responsibly and it will want to ensure Pemex bonds do not fail," Myers Jaffe said. "Those two interests need to be aligned."

But even if a deal is reached, oil producers still face an unprecedented global economic crisis and subsequently sluggish demand, Newsweek reported this week. The coronavirus pandemic is still roiling the world's major economies, many of which remain under government-enforced lockdown.

Since the start of this year, crude has lost half its value. In the U.S. alone, oil stock increased by 15.2 million barrels over the past week, the largest historical weekly rise.

Lack of demand has even raised fears that nations and firms will run out of oil storage space. Industry analyst IHS Markit warned that the first half of 2020 will see an increase of 1.8 billion in global oil inventories, though there is only storage space for some 1.6 billion.

Ahead of the Thursday meeting, tanker-tracking data compiled by Bloomberg showed a surge in tankers carrying crude to the U.S. in what experts called a further attempt to flood the markets as demand collapsed.