• Coronavirus: The world is on the verge of the crucial meeting of OPEC to reduce production
  • Macroeconomics: coronavirus unleashes the biggest drop in oil prices in 29 years

After four days of meetings, negotiations and US pressure, the Organization of the Petroleum Exporting Countries (OPEC) and its allies -captained by Saudi Arabia and Russia- have signed a historic agreement late this Sunday that represents the largest reduction in the crude oil production in history, to try to prop up prices in the face of the drastic drop in demand caused by the coronavirus pandemic .

The initial pact, announced Thursday after a month of price war between Riyadh and Moscow, ran aground after the unexpected refusal of Mexico, interested in refloating the heavily indebted state oil company Pemex . Since then, the Saudis have tried to convince Andrés Manuel López Obrador's government to accept a snip that supports prices. On Friday the G20 meeting of energy ministers , chaired by Riyadh, ended without progress. The consensus has been forged in a virtual meeting held this Sunday by OPEC and other producer nations.

The group has agreed to reduce its production by 9.7 million barrels per day - equivalent to 10% of global supply - between the months of May and June. From then on and until the end of the years, the cut will be 7.6 million and 5.6 million until April 2022. The figures quadruple at the close of the tap signed in 2008 in the context of the international financial crisis.

The amount, however, is even higher because - according to Saudi Energy Minister Prince Abdelaziz bin Salman - both his country and the United Arab Emirates and Kuwait have decided to offer additional reductions that bring the figure to 12.5 million barrels.

OPEC has been trying for days, in addition, to involve the G20 countries that do not belong to the organization so that they also make adjustments in their production worth 5 million barrels per day. An effort that could raise the production cut to 20 million barrels. At Friday's meeting, the G20 recognized the need to take "all necessary measures" to maintain the balance between producers and consumers without further precision.

Little demand to the USA

Canada and Norway have shown their willingness to support the petition, while the US has insisted that its shale oil production will decrease "automatically" due to lack of demand.

US President Donald Trump, who even threatened to impose tariffs on Saudi crude, has been one of the main players in the sealed peace between Riyadh and Moscow. "The great OPEC + oil deal is closed. This will save hundreds of thousands of jobs in the US energy sector," he has bragged on Twitter. "I would like to thank and congratulate President Putin of Russia and King Salman of Saudi Arabia. I have just spoken to them from the Oval Office. It is a great agreement for all," added who has shown himself in the past as a staunch enemy. OPEC.

The pressures have also ended by lifting the veto of Mexico, which points to a victory. The Central American country will reduce its production by 100,000 barrels per day from next month. "Mexico appreciates all the support of the OPEC countries at the extraordinary meeting held today. The unanimous agreement of the 23 participating countries will initiate a reduction in the oil platform of 9.7 million barrels from May ", has limited to declare the Mexican Secretary of Energy Rocío Nahle. The initial request, according to the deal agreed by OPEC, was for Mexico to drop up to 400,000 barrels.

In the impasse that has lasted all weekend, López Obrador assured that Trump had offered to make cuts in his production on behalf of Mexico. The agreed mechanism between the two, however, has not been made public. One of the consequences of the Mexican pulse is its possible exit from OPEC +, an issue that could be resolved in two months.

The pact was closed hours before the markets opened, with the haste of a health crisis that is causing the international economy to hibernate. In recent weeks, demand for crude oil has plummeted to 70 percent in markets such as Europe or India. "The massive contraction in demand is unprecedented. This is a level of reduction never seen in the history of this industry. The outlook seems extremely bleak," acknowledges an OPEC document that threatened a "bleak picture", with the price dropping to single digits if cuts are not approved.

The measure, however, causes skepticism among experts. Goldman Sachs and UBS had slipped that a cut of between 10% and 15% could be insufficient to stop the fall. The price of a barrel of Brent oil, the benchmark for Europe, last month posted its lowest in 18 years. As proof of the uncertainty generated by the pact, last Thursday -after the details were announced- oil prices suffered falls on the New York Stock Exchange.

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