OPEC+ to meet June 6 on extending oil quotas, but Mexico says it won't cut output again

London — Just as OPEC and its allies have resolved a standoff with Iraq, Mexico has reemerged as another potential glitch in talks over the coalition's landmark production cut accord.

The OPEC+ coalition is scheduled to meet June 6 via webinar to finalize what most members hope is a deal that would continue the collective 9.7 million b/d cuts through at least July.

Mexico's President Andres Manuel Lopez Obrador, however, has declared that his country will no longer play ball, having fulfilled its obligation to cut 100,000 b/d of its output for May and June.

"We have already complied," the president said during his daily press conference on June 5. "We have closed oil wells to comply with our commitment; we couldn't reduce our production any further."

Energy secretary Rocio Nahle will be participating in the meeting by phone, stating Mexico's position, the president added.

Mexico had been the last holdout when the 23-country OPEC+ coalition hammered out its production agreement in April in the midst of an oil price crash, balking at a prescribed 400,000 b/d cut that it said would severely hamper its efforts to boost its oil industry as an engine for economic development.

After the contentious talks stretched over several days, Mexico eventually agreed to rein in 100,000 b/d, diluting what would have been a 10 million b/d OPEC+ cut deal to 9.7 million b/d -- still the largest coordinated supply accord in the oil market's history.

Those cuts are scheduled to roll back to 7.7 million b/d starting in July for the rest of the year, but many members have called for an extension, given the uncertainty of the global economic outlook as it recovers from the COVID-19 pandemic that has battered oil demand.

OPEC kingpin Saudi Arabia and Russia -- the largest non-OPEC participant, have aligned behind a one-month extension, according to sources involved in the talks -- as they try to thread the needle between supporting the oil market's fragile rebound and sending prices up too quickly by overtightening the market. Dated Brent is up some 185% since hitting an 11-year low in April.

One OPEC source brushed aside Mexico's stance, saying that since Mexico is "barely a net exporter" of crude, its lack of participation in the deal may be moot.

OPEC said it would meet June 6 at 2 pm CET (1200 GMT), and Russia and nine other allies, including Mexico, will join the talks at 4 pm (1400 GMT).

TOUGH TALKS WITH IRAQ

Up until June 5, Iraq had been seen as the biggest obstacle to closing the deal on an extension.

OPEC's second largest producer has frequently pumped above its agreed cap and came under heavy pressure by fellow members to improve its performance.

Saudi Arabia and Russia, in particular, had pushed for Iraq -- as well as other quota busters, including Nigeria, Angola and Kazakhstan -- to compensate for their overproduction by implementing deeper cuts in the months ahead, according to sources involved in the talks.

While the other countries had readily came on board, Iraq resisted until June 5, the sources said.

No details of what the countries have agreed to do have been made available, but in a statement, Iraqi oil ministry spokesman Assem Jihad said that Iraq understood the importance of complying with the deal.

"Despite the economic and financial conditions facing Iraq, it is sticking to adherence to the agreement, because it believes in the necessity of solidarity of all producers ... to save the oil market," Jihad said.

Under the current agreement, Iraq has an output cap of 3.59 million b/d. But the oil ministry reported June 1 that the country's May exports averaged 3.58 million b/d, making it almost certainly in violation of its quota, as Platts estimates that the country's internal consumption for refinery runs and power generation totalled about 550,000 b/d in the month.

Full OPEC+ compliance data will not be available until mid-June, after the six secondary sources used by the alliance to monitor production, including Platts, submit their figures.

"While recommitting to its quota in the coming months is relatively straightforward, at least so that Iraq does not hold up the entire OPEC agreement, a promise to cut deeper to make up for the excess output cannot be made lightly, especially as the chances of failure will be that much higher," said Vandana Hari, who heads the oil consultancy Vanda Insights.

COMPLICATING FACTORS

In his statement, Jihad attributed Iraq's overproduction to its need for oil revenues to rebuild the country, as well as a recent transition to a new government under Prime Minister Mistafa al-Kadhimi, who took office in May.

Kadhimi on June 4 nominated Basra Oil Company's director general, Ihsan Ismaael, to serve as Iraq's oil minister. If approved by parliament, which is expected to convene on June 6 to consider the nomination and other appointments, Ismaael would replace finance minister Ali Allawi, who has been serving as interim oil minister.

Postponed negotiations with the semi-autonomous Kurdistan Regional Government over sharing oil revenues also prompted the KRG to delay the implementation of its agreed 23% crude production cut, Jihad added.

Jihad said the ministry was in constant contact with its OPEC+ counterparts "to discuss developments in the oil market, and affirming Iraq's full commitment to the agreement alongside other producing countries."