Trump turns to Mexico in a ploy to end the oil price war

Mexico had balked at a 10-million-barrel-a-day compact the Saudis and Russians were pushing, and refused to agree to its share of cuts. That threatened to upend the proposal, though with demand wilting in the face of the coronavirus pandemic and storage capacity quickly filling up, an imminent turndown in production has become inevitable one way or another.

That reality, and the plan for global cuts, was endorsed at a special G-20 meeting Friday, but to keep the Mexican stand from undermining the fragile agreement, Trump announced that the United States would "pick up the slack" so that Mexico wouldn't have to scale back too deeply.

It's not clear how substantive a move that would be.

"We'd make up the difference," he told a White House briefing, then immediately added, "Now, the U.S. production has already been cut."

Trump, who wants to help prop up the price of oil for American producers, had previously told the Saudis and Russians that they would have to accept market-driven reductions in U.S. output in place of the formal quotas that they preferred. And, with much grumbling in Moscow, they seemed to be prepared to do so. On Friday morning, Energy Secretary Dan Brouillette told a meeting of the G-20 nations that U.S. production would decline by between 2 and 3 million barrels a day by the end of this year.

That's about the level that Moscow and Riyadh were looking for as they sought to enlist nations outside the so-called OPEC+ group to bring the total cuts to 15 million barrels a day worldwide.

By Friday afternoon, Trump was suggesting that the U.S. falloff was sufficient to cover Mexico's burden, as well - apparently without any sort of presidential order or quotas imposed by Washington.

But Trump mentioned the debt that Mexico would consequently owe.

"We are trying to get Mexico, as the expression goes, over the barrel," he said. "The United States will help Mexico along and they'll reimburse us at a later date when they're prepared to do so."

He and Mexican President Andrés Manuel López Obrador discussed the arrangement late Thursday evening by phone, and it was first reported by López Obrador.

Some pundits couldn't resist bringing up his promise that Mexico would someday pay for the border fence - a promise that so far hasn't been met.

Mexico is the world's 12th-largest producer of oil, and has hedged much of its 2020 output - that is, agreed ahead of time to a set price, reportedly about $49 a barrel. That practically eradicates any incentive Mexico might have to go along with production cuts this year.

"Everything would suggest that Trump's 'promise' to cut oil production for Mexico is a lot of hot air," tweeted Gregory Brew, a historian of the oil business. "He has done nothing to indicate he supports taking direct action to rein in US production."

"Will the Saudis and the other #OPEC+ members swallow the toad after Trump's comments on #Mexico?" tweeted Giovanni Staunovo, an oil analyst at UBS in Switzerland.

López Obrador told journalists Friday that in their phone call the night before, Trump began to read off the names of all the countries that had accepted the deal in a meeting of the OPEC+ nations Thursday. And then he asked why Mexico had not.

"I made a proposal that fortunately he accepted, which is that they [the United States] would compensate," López Obrador said. "When I said that we couldn't do more than 100,000 [barrels a day], he very generously said they could help with the extra 250,000, they could handle that, and I thank him for that."

Since taking office in December 2018, López Obrador has sought to strengthen Mexico's state oil giant, Pemex, and ramp up production, which has fallen for years. The leftist leader has maintained a cordial relationship with Trump despite strong policy differences.

Trump himself acknowledged that the Saudis, Russians and other OPEC+ nations might not go along with the Mexican ploy.

"I don't know that it's going to be accepted," he said. "We'll find out."

In Moscow, the energy minister, Alexander Novak, told Russian television that the arrangement to cut production would in theory last for two years, but given that nothing has been signed and the U.S. contribution to cuts depends on market forces, he added: "We will need to monitor the situation; it will inevitably change. And if necessary, either additional measures will be taken or output for countries will be restored faster."