Mexico Backs OPEC Deal, Announces 215,000 Bpd Output Cut in 2017

Mexico, which is not a member of the Organization of Petroleum Exporting Countries (OPEC), has backed the OPEC deal; reached in Vienna on November 30, announced its readiness to cut its own crude output.

According to the country’s Secretariat of Energy, starting January 2017 Mexico will reduce its oil production by 215,000 barrels per day. Thus, the Latin American country will maintain its planned production volume of 1.944 million bpd for the year.

What may look like an act of goodwill at first glance is revealed as an inevitability upon closer inspection. Mexico’s crude output has been continuously declining since 2004. At the time, the country’s production stood at 3.38 million bpd.

In April 2016, the Mexican government decided to provide the state-owed oil company Pemex with $4.2 billion to strengthen the company’s financial position. At the same time, Pemex has cut its 2016 budget by $5.5 billion, as well as announced plans of non-strategic assets sales and an IPO.

Be it as it may, another non-OPEC country has backed the cartel with its own production cut alongside Russia, which will gradually cut output by up to 300,000 bpd in 2017.

As such, the 600,000 bpd cut by non-OPEC countries has been almost fully shouldered on, leaving other crude producers with the opportunity to exceed the agreed volume if they wish to see crude oil prices pick up at an even faster rate.

On the contrary, other, more opportunistic producers would see this as a chance to roll out their oil production to try to take over market share.

Someone like the United States, perhaps?

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Donald Levit

Donald is a strategist for economiccalendar.com. He specializes in a fundamental approach while informing traders of relevant economic data. Actively trading since university, Donald trades indices and commodities. He earned his Bachelor's in Finance from Baruch College's Zicklin School of Business in New York City.

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