Russia and Saudi Arabia agree Cut Back in Oil Production but Mexico may not Play

FOR the oil producing countries in OPEC and also OPEC+, a high price for crude is absolutely essential in order to keep their economies buoyant in this time of coronavirus crisis.

Finally it looks as if two of the largest producers Russia and Saudi Arabia are in agreement as to cuts in production in order to try to make the wholesale price increase from the extreme lows that have occurred in the past month.

Simply with national and international lockdowns, the number of people driving has dropped considerably meaning that consumption of diesel and petrol has slumped.

Aviation fuel has also taken a sharp drop as fewer airlines are flying fewer people to fewer destinations.

As long as there is an oversupply then prices will be kept low, but if cuts of between 10 and 15 per cent go ahead then prices should start to rise again.

To achieve this however there has to be some form of unity amongst major producers and it is only recently that Russia joined OPEC+ partly it is thought because of the fact that the production of crude from shale in the USA made America the largest producer in the world.

Another large producer is Mexico and although part of OPEC+ it is reluctant to reduce production as it needs a constant volume of funds to support its weak economy.

According to the Mexican President, the US, although not part of either group, might help resolve the situation by offering to cut its own production as a ‘gift’ to Mexico although one of the reasons could well be that the production of shale oil is more expensive than production by traditional methods.

It does seem however that between them, the oil producing countries will cut production with the hope of increasing prices, so if your car’s fuel tank is low, now may be the time to think about filling it up.