WASHINGTON/MEXICO CITY (Reuters) – U.S. President Donald Trump said on Friday he had agreed to help Mexico contribute to global oil output reductions, in a surprise move that could break the impasse over a major round of cutbacks aimed at stabilizing crude prices.
FILE PHOTO: Mexico’s President Andres Manuel Lopez Obrador holds a news conference at the National Palace in Mexico City, Mexico, March 17, 2020. REUTERS/Henry Romero/File Photo
Mexican President Andres Manuel Lopez Obrador said earlier in the day that the U.S. cuts would amount to 250,000 barrels per day, but Trump said details were still being worked out.
Speaking in Washington, Trump said the cuts would depend on the approval of other oil-producing nations, and said Mexico would reimburse the United States at a later date.
During talks on Thursday inside the OPEC+ group, oil producers resolved to make cuts equivalent to around 10% of global supplies, but Mexico balked at the initiative.
Oil prices have cratered under the combined pressure of a price war and the devastating economic impact of the coronavirus global pandemic. Trump had previously warned Saudi Arabia that it could face sanctions and tariffs if it did not reduce production enough to help the U.S. oil industry.
Lopez Obrador said Mexico, which had contributed to a previous cut proposal by producers gathered at the OPEC+, was this time pressed to make cuts of 400,000 barrels per day (bpd), or 23% of current output, before the group lowered the target to 350,000 bpd.
Lopez Obrador, who has made increasing oil output one of his priorities, said Trump offered to help before Mexico announced it would cut output by only 100,000 bpd.
“When I told him that it was 100,000 and we couldn’t do any more, he very generously said to me that they were going to help us with the additional 250,000 to what they are going to contribute,” he said. “So for that I thank him.”
Trump in his remarks in Washington did not elaborate on how the barrels are to be withdrawn from the global market.
“The United States will help Mexico along and they’ll reimburse us sometime at a later date when they are prepared to do so,” he said. “We’ll find out how that all works out.”
Lopez Obrador suggested the U.S. leader had initiated the conversation, saying, “President Trump got in touch with us.”
Unlike countries such as Mexico with a state-controlled oil company that allows the government to dictate production cuts, U.S. oil producers are private companies and government-mandated output cuts would require coordinated reductions.
Global output cuts that stabilize prices are likely to provide some relief to U.S. shale producers, some of which risk being pushed out of the market unless prices recover.
A Mexican official, speaking on condition of anonymity, expressed concern about what Washington would seek in return, saying that Trump might use his offer to court Mexican-American voters in November’s presidential election.
Lopez Obrador said Mexico resisted making deeper output cuts because it has gone to great lengths to reverse years of declining output at state oil firm Petroleos Mexicanos.
During their call Thursday night, Trump marveled at how Mexico was the only holdout to the deal, Lopez Obrador said.
Mexico’s tough position during the OPEC+ meeting surprised other participants, according to sources.
“The two most likely scenarios I see today are that Mexico is left out of the OPEC+ pact or that Trump is successful on building a plan to cover the remaining 250,000 bpd,” said Mexico City-based oil analyst Gonzalo Monroy.
Normally, any coordinated decision by U.S. oil producers to reduce output to boost prices would violate antitrust laws. But legal experts say that if the federal government leads the charge such an effort would arguably be legal.
Reporting by Jeff Mason and John Whitesides in Washington and Dave Graham in Mexico City; Additonal reporting by Julia Love and Marianna Parraga; Writing by Dave Graham; Editing by Leslie Adler