Mexico adopts passive role in cooperation with OPEC

Five years after leading the charge on supply cooperation between the OPEC and its independent competitors, non-OPEC Mexico now appears a passive bystander. A lot has happened since Mexico brought OPEC heavyweights Venezuela and Saudi Arabia to the negotiating table in 1998 to rein in a world oil glut that was walloping prices and threatening the fiscal accounts of producers.
Now, OPEC is courting Mexico and other independent producers, namely Russia and Norway, to continue the cooperation amid concerns that a return of Iraqi oil to the world market could hit prices later this year.

Mexican Energy Minister Ernesto Martens met in Madrid with his Saudi and Venezuelan counterparts, Ali Naimi and Rafael Ramirez, where the three agreed to "coordinate their response actions with other producers for the normal flow of oil supplies, maintaining a fair price for producers and consumers alike." Although Mexico hosted the meeting at its embassy in the Spanish capital, the subject appears to have been OPEC coaching its former coach.
In April, when OPEC announced plans to cut production by 2 mm bpd in June, Mexico said it would wait before deciding whether to alter its 1.88 mm bpd export level. On May 30, Mexico again delayed, saying it would await the outcome of the OPEC meeting in Doha. <<P>The Energy Ministry said, however, that it shared OPEC concerns about the effects a resumption of Iraqi oil exports could have on the market. OPEC's current efforts to bring Mexico and other non-OPEC producers on board for possible output restrictions aren't for now, but rather prepare the ground for a move further down the road, said Antonio Szabo of Houston-based consultancy Stone Bond Corp.
"To cut production at $ 31 a barrel would put them on a collision course with the consumers," he said.

Mexico's next crude export decision will be its first since the US invasion of Iraq, which was a sore point in relations between the two neighbours and partners in the North American Free Trade Agreement. Mexico is frequently the top foreign supplier of crude oil to the US, which absorbs about 80 % of its exports.
George Grayson, professor of government at William and Mary College, said President Vicente Fox infuriated Washington when he declared in a national address that Mexico didn't agree with the decision to attack Iraq, implying that Mexico would have voted against the invasion had it come to a vote on the UN Security Council.
"Chile also would have voted against, but they didn't shout it from the mountaintop," said Grayson. But Grayson said he expects Mexico to continue to coordinate its exports with OPEC, particularly since higher oil prices put additional funds in government coffers.

A combination of events may allow Mexico to navigate around the dilemma this year, keeping both producers and consumers happy in line with the stated goal. Grayson noted that significant amounts of Iraqi oil probably won't hit the market before the autumn, when typically Mexico's oil production dips during the latter part of the Atlantic hurricane season.
Stone Bond's Szabo said the best thing that the oil ministers can do is not say anything, as long as non-OPEC producers are "on board conceptually," to make cuts at a certain level. Mexico isn't saying anything.