The U.S. agreed on Thursday to make 250,000 barrels per day (bpd) in additional cuts to oil output to help Mexico contribute to global reductions, Mexican President Andres Manuel Lopez Obrador said on Friday.
During marathon talks on Thursday inside the OPEC+ group, oil producers agreed to make cuts equivalent to around 10% of global supplies, but Mexico balked at the initiative.
Speaking at a regular news conference, Lopez Obrador said Mexico had been pressed to make cuts of 400,000 bpd, before the group lowered the target to 350,000 bpd.
Lopez Obrador, who has made increasing oil output one of the priorities of his administration, said U.S. President Donald Trump had spoken to him on Thursday and offered to help before Mexico announced it would cut output by 100,000 barrels per day.
"President Trump said the United States is committed to reducing output by 250,000 (barrels), on top of what it was going to do, for Mexico in order to compensate," he said.
The Mexican president's announcement of U.S. cuts came as a surprise given Trump's past reluctance to ask for coordinated cuts by U.S. oil producers. However, U.S. Energy Secretary Dan Brouillette said on Friday that: "It is a time for all nations to seriously examine what each can do to correct the supply/demand imbalance."
Brouillette said in prepared remarks for Friday's G-20 meeting of energy ministers from the world's top 20 economies: "We call on all nations to use every means at their disposal to help reduce the surplus."
Mexico resisted making deeper cuts because the country has gone to great lengths to reverse years of declining output at state oil firm Petroleos Mexicanos, Lopez Obrador said.
During their call Thursday night, Trump marveled out how Mexico was the only holdout to the deal, Lopez Obrador said.
"When I told him that it was 100,000 (barrels) and we couldn't do any more, he very generously said to me that they were going to help us with the additional 250,000 to what they are going to contribute," he said. "So for that, I thank him."
Oil prices have been wallowing near two-decade lows due to the coronavirus pandemic and a price war between key players Saudi Arabia and Russia.
The agreement will see output between May and June cut by 10 million bpd and another 8 million from July to December, but it depends on Mexico's consent to take effect.
The agreement between the Organization of the Petroleum Exporting Countries (OPEC) and partner countries aims to cut 10 million bpd until July, then 8 million barrels per day through the end of the year, and 6 million a day for 16 months beginning in 2021.
Mexico had initially blocked the deal but Lopez Obrador said Friday that he had agreed with U.S. President Donald Trump that the U.S. would compensate what Mexico could not add to the proposed cuts.
Lopez Obrador's statements pave the way for cuts that experts estimate could reach 15 million barrels a day in all – about 15% of world production. Such a move would be unprecedented both in its size and the number of participating countries, many of whom have long been bitter rivals in the energy industry.
The price of crude is down by over 50% since the start of the year and while that helps consumers and energy-hungry businesses, it is below the cost of production for many countries and companies. That has strained the budgets of oil-producing nations, many of which are developing economies, and it has pushed private companies in the U.S. toward bankruptcy.
Analysts warn even these proposed cuts may not be enough to offset the loss in demand over the longer term, as the coronavirus pandemic has decimated demand for energy around the world.