March 12, 2020 / 2:47 AM / 21 days ago

Mexico open to cutting oil output to support prices, but production already waning

MEXICO CITY, March 11 (Reuters) - Mexico's energy minister hinted on Wednesday at the country's "willingness" to cut crude oil output in a bid to support prices, but it was unclear whether any new voluntary curbs might go beyond already falling production.

The minister's comments come as international crude prices have been hammered by a price war pitting Saudi Arabia against Russia.

Last week, Saudi Arabia failed to secure Moscow's support for deeper production cuts at a meeting of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+. Saudi Arabia then slashed prices for its exports, threatening to flood the market with oil and drive prices even lower.

Mexican Energy Minister Rocio Nahle signaled an openness on Wednesday to voluntary production cuts, but without going into any detail.

"The price of the Mexican (oil export) mix is determined by international oil prices. All producing countries in the latest Opec-Non-Opec meeting expressed our willingness to adjust by a percentage to avoid overproduction," Nahle wrote in a post on Twitter.

"We are in permanent communication," she added.

Her office declined to make further comment when asked for clarification later on Wednesday.

Earlier this week, Mexico's finance minister told reporters that the country's diplomats, along with those from other countries, stand ready to mediate the Saudi-Russian dispute.

More than two decades ago, Mexican officials worked behind the scenes to support international prices.

After a year of secret diplomacy around the world in 1998, Saudi Arabia and then important producer Venezuela were persuaded to cut a deal by non-OPEC Mexico, overcoming mutual acrimony and leading to a rise in oil prices.

At the time, Mexico had more room to maneuver, as national oil company Pemex's production stood at more than 3 million barrels per day (bpd), a far cry from current output of about 1.7 million bpd.

Pemex production hit a peak of some 3.4 million bpd in 2004, but has fallen every year since then despite several reform pushes meant to reverse the trend.

President Andres Manuel Lopez Obrador, a leftist energy nationalist who took office in late 2018, has pledged to grow Pemex production while simultaneously spurring any new opportunities for private producers.

Pemex is still responsible for the nearly all of Mexico's oil output despite the presence of several dozen foreign and private producers in the early stages of contracts awarded by the government of Lopez Obrador's predecessor.

A former senior government official, speaking on condition of anonymity due to the sensitivity of the issue, described any new voluntary cuts as unlikely.

"Our production has declined enough already and it will probably continue to do so naturally. That's enough of a contribution," the former official said.

But if Lopez Obrador's government were to offer a modest cut, the official said it could be used to deflect blame domestically if output continues to slide.

"This could help be able to say that the production has fallen due to a new output cut deal and not due to other complications," the former official added.

Last December, an OPEC table listing production cuts committed to by non-OPEC producers specified an 18,000 bpd cut for Mexico, but it is unclear if that commitment was separate from the expected drop in output.

Pemex's 2019 crude production fell by 135,000 bpd compared to the previous year, according to company data. (Reporting by David Alire Garcia; Editing by Kenneth Maxwell)

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