The latest Opec+ deal had almost achieved the near-impossible. For now, an agreement hangs on the knife-edge of Mexican resistance. But despite all the attention on the next month or two, the accord's real importance is in the long term.
The proposed steep cut in Opec+ oil output, encouraged by a vacillating Trump administration, quickly reconciled Russia and Saudi Arabia after their price war began at the end of last month. And it had been advocated not just by famously independent Texas and Alberta, but by the largely oil-importing nations of the G20 in their communique on Friday.
The headline cut of 10 million barrels per day in May actually amounts to 7.4 million bpd on February levels – still an unprecedented reduction. It goes some way towards easing the glut arising from the coronavirus-induced demand collapse that might now have wiped out some 30 million bpd.
The US, Canada and other major producers outside Opec+ have not committed to cuts but they will suffer "rationing by the purse": low oil prices will force some of their fields to shut down. The US might lose three million bpd this year and Canada one million bpd or more.
Returning to co-operation required a change of heart in the Kremlin. Russian President Vladimir Putin's right-hand man, Igor Sechin, the head of state oil giant Rosneft, had argued for striking against US shale oil.
But the reality of very low oil prices and awkward access to markets for Russian oil companies and the state budget seems to have sunk in.
Riyadh and Moscow agreed to parity in the deal: each has a notional benchmark of 11 million bpd from which they should cut 2.5 million bpd. But Saudi Arabia was only producing 9.7 million bpd in February; it has benefited from its demonstrated ability to flood the market.
The UAE takes more of the burden, being judged on its constrained production in October 2018, not its more recent increase.
Kazakhstan and Brunei were eventually brought on board. But Mexico has so far held out because of president Andres Manuel Lopez Obrador's insistence that national oil company Pemex will increase production, even though with low prices and underinvestment, it clearly won't.
Mexico is famously the only sovereign oil producer to hedge most of its output for the year ahead, guaranteeing a minimal level of revenue.
However, next year is another matter – and the country badly needs prices to be on the way up by then.
If Mexico's position is accepted, other countries – for instance, Malaysia, Kazakhstan, or even Opec member Nigeria or Iraq – might plead special circumstances for a lower cut. Then the deal would have to be negotiated all over again, and probably become untenable.
Others have escaped by not showing up. Brazil, another big Latin American producer in the G20, has never been part of the Opec+ alliance, despite President Jair Bolsanaro's flirtation with joining Opec.
Ecuador dropped out of the group but it had struggled to export its crude anyway.
Mexico's intransigence is a get-out clause. The rest of Opec+, in particular Saudi Arabia and Russia, came under US pressure with complaints from legislators from oil-producing states, threatening tariffs, embargoes on US imports of their oil or even the withdrawal of military aid.
In light of the Mexican standoff, they can blame any failure on its president.
Still, the deal as it stands has to be viewed sceptically. It only comes into action in May and then is due to be scaled back from July onwards.
Russia hardly complied with cuts of 300 000 barrels per day over many months under the last Opec+ deal, so will it now cut more than two million bpd?
Iraq and Nigeria also did not comply fully. Apart from Oman, the other non-Opec countries in the previous deal mostly volunteered their natural decline in production. This time, they will have to make actual cuts.
Reality will play out more chaotically as storage in various places fills up. Some countries may find they can’t even sell the limited volumes they’re allowed.
Others may discover that they can export extra amounts and think it best to take their chance while the market exists. Libya, which is not bound by a target, might rebound if the blockade of its oil ports is lifted.
The G20 countries have been asked to fill their emergency storage to soak up some of the excess supply but only some 85 million barrels of space remains in OECD countries, of which 77 million of that in America strategic reserve.
So, unless there’s a dramatic turnaround in demand, the deal as it stands will just delay filling storage by a month or two. But it will have an important long-term effect: preserving spare capacity.
When mature or low-productivity wells and fields are shut in, it may never be economic to restart them. North American shale production will drop off sharply at current prices as the drilling and completion of new wells is unprofitable almost everywhere.
As the world economy recovers, this could mean a squeeze. Shale optimists may think production would bounce back at the right price but it's very unlikely that a consolidated and capital-starved industry will be able to grow again at the pace of recent years.
Now, assuming the Mexican hiccup is overcome and the rest of the deal holds together, major producers will retain a lot of spare powder rather than pumping flat-out.
The market has paid too much attention to the impossible burden on Opec+ in the near-term but not enough to the flexibility it regains in the long term.
Robin M. Mills is CEO of Qamar Energy, and author of The Myth of the Oil Crisis