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Copyright © 2020 Albuquerque Journal

The world’s major oil producing countries are hammering out agreements for huge cuts in global output to raise prices, but it’s unlikely to bring much relief to the oil and gas industry in New Mexico or elsewhere until the coronavirus lockdown ends and demand for fuel rebounds.

The Organization of Petroleum Exporting Countries, Russia and others agreed in principle Thursday to collectively cut production by 10 million barrels per day, and to seek five million barrels in additional cuts from the U.S. and other nations during a meeting of the G-20 energy ministers on Friday. If successful, the 15 million barrel per day reduction would represent an unprecedented production rollback.

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OPEC and Russia, however, want the U.S. to impose state-mandated cuts, rather than let the free market force producers to scale back operations through low prices. If OPEC and Russia maintain that position, it could derail a G-20 accord, said longtime industry expert Daniel Fine.

And even if a deal is reached, it may do little to raise oil prices, since consumption is now hovering at 50-year lows, and with the world awash in excess crude, said Patrick DeHaan, head of petroleum analysis at Boston-based GasBuddy, which tracks gasoline prices nationwide.

“The global supply glut will limit the impact of any agreement,” DeHaan told the Journal.

Worldwide consumption has fallen to about 65 million barrels of oil a day, down from 100 million before the pandemic began.

In the U.S., crude demand has fallen 30% to 14.4 million barrels a day, its lowest level since 1990, according to the U.S. Energy Information Administration. And this week, domestic gasoline consumption reached a 52-year low.

Consumers at least are benefitting from low prices. The statewide average for a gallon of regular unleaded declined to $1.86 on Thursday, 70 cents less than the same day last year, according to AAA New Mexico Weekend Gas Watch.

But with crude prices stuck in the low 20s per barrel since mid-March, oil and gas operations are shutting down in southeastern New Mexico, encouraging some major Permian Basin producers to call on the U.S. and other G-20 countries to reach an agreement with OPEC and Russia.

“We are pleased to see the OPEC-plus agreement to reduce 10 million barrels per day of oil from the market,” Mark Berg, Pioneer Natural Resources vice president of corporate operations, told the Journal in an email. “Any progress to reduce oversupply is constructive. However, due to the significant demand destruction caused by the COVID-19 pandemic, it will be necessary for additional reductions in oil supply to balance the market. These reductions need to come from other parts of the world, like Canada, Brazil and the U.S.”