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Saudi-Mexican clash stops record oil cut deal despite US pressure

Commercial oil tanker AbQaiq readies itself to receive oil at Mina-Al-Bkar Oil terminal (MABOT), an off shore Iraqi oil installation [US Navy-Wikipedia]
An oil tanker, 19 July 2019 [US Navy / Wikipedia]

Top oil nations struggled to finalise record output cuts at G20 talks on Friday to boost prices slammed by the coronavirus crisis, as Saudi Arabia clashed with Mexico despite US President Donald Trump's mediation offer, reports Reuters.

OPEC led by Saudi Arabia and its allies led by Russia, which together make up the informal OPEC+ group, had forged a pact to curb crude production by 10 million barrels per day (bpd) or 10% of global supplies in marathon talks on Thursday.

Russia and OPEC said they wanted other producers including the United States and Canada to cut a further 5%.

But efforts to conclude the deal hit the buffers when Mexico said it would only cut output by a quarter of the amount demanded by OPEC+.

Measures to curb the spread of the coronavirus have destroyed demand for fuel and driven down oil prices, straining budgets of oil producers and hammering the US shale industry which is more vulnerable to low prices due to its higher costs.

Mexico President Andres Manuel Lopez Obrador said on Friday Trump had offered to make extra US cuts on his behalf, an unusual offer by a president who has long railed against OPEC.

Trump, who had threatened Saudi Arabia with oil tariffs if it did not fix the market's oversupply problem, said Washington would help Mexico by picking up "some of the slack" and being reimbursed later. He did not say how this would work.

But the offer was still not enough to close the deal.

Read: US Senator submits bill to withdraw forces from Saudi Arabia

Two sources familiar with the discussions said Saudi Arabia clashed with Mexico on Thursday and again on Friday, when the kingdom hosted talks of energy ministers from the Group of 20 major economies that were aimed at endorsing OPEC+ efforts.

Hours after talks ended, a G20 communique made no mention of the cuts or quantities, but only referred to "measures to ensure energy market stability". It remained unclear how the OPEC+ pact could be now finalised.

"We call on all nations to use every means at their disposal to help reduce the surplus," US Energy Secretary Dan Brouillette had told the G20 talks.

Brouillette said the United States would offer supporty with a natural decline in its oil output driven by economic forces. Although not a formal cut, it still represents a major shift for by a country which has never joined OPEC in coordinated action.

Brouillette said US output could fall by between 2 million and 3 million bpd by the end of 2020 – a bigger drop over a shorter period of time than officials previously indicated.

Read: Oil prices climb as OPEC+ is set to face oil challenges head on

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