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Friday, May 16, 2003

Mexico courts U.S. with shift away from OPEC

Reuters, 05.08.03, 3:10 PM ET By Elizabeth Fullerton

MEXICO CITY (Reuters) - Mexico's decision to orient its oil policy towards the United States and away from the OPEC cartel is seen as more about mending bruised ties with its main trading partner than a fundamental policy shift.

Mexican Foreign Minister Luis Ernesto Derbez said on Wednesday during a visit to Washington that the linkage between Mexico's oil policy and OPEC production decisions will weaken as North America becomes more of a single energy market.

"I think part of this is fence-mending with some of our natural trading partners who chose publicly and visibly to go their own separate ways with the war (on Iraq)," said Larry Goldstein, President of the Petroleum Industry Research Foundation in New York.

Mexico annoyed the United States, which buys 90 percent of its exports, by refusing to back a U.S.-led attack on Iraq.

Non-OPEC Mexico is the eighth biggest crude producer in the world and one of the top four oil suppliers to the United States, along with Saudi Arabia, Venezuela and Canada.

Since 1998 Mexico has cooperated with the Organisation of Petroleum Exporting Countries in raising and lowering supply to stabilize global oil prices.

Mexico had curbed its exports since the start of 2002 in cooperation with OPEC to boost prices from late 2001 lows but as of February this year it raised its export platform to 1.88 million bpd to compensate for lost supply from a Venezuelan strike and curb rising oil prices as a war on Iraq loomed.

"(Derbez's comments) could be taken as a message that Mexico is in a better position to increase its share of the U.S. market because of the situation with Venezuela and other global events," said Lisa Pearl, Associate Director at Cambridge Energy Research Associates.

Mexico in March exported an average of 1.88 million barrels per day (bpd) of crude on average output of 3.317 million bpd. Mexican energy officials have said the nation is currently close to its export and production capacity limit.

PRAGMATISM RULES

Mexico has something of a tightrope to walk between cooperating with OPEC to keep oil prices -- and hence export revenues -- buoyant and not upsetting the United States or hurting its economy which is closely linked to Mexico's.

"Where they fit in this continuum between close ties with a consumer like the U.S. and close ties with other producers like OPEC depends a lot on price level," said Sarah Emerson, Managing Director at Energy Security Analysis Inc in Boston. "I think if the (oil) price fell to $10 (a barrel) again Mexico would line up with OPEC to try to reign in production worldwide. If the price is $30 Mexico is certainly not going to talk about its alliance with OPEC," she added.

Oil prices on Thursday were trading around $27 a barrel in New York. Prices have fallen since OPEC's surprise decision two weeks ago to raise its official output limits while claiming a large cut in actual supplies.

Mexico, which has over the past year mirrored OPEC's moves in its own oil policy, said it would define its oil export platform by June 1 in the wake of the OPEC move.

Analysts stressed that pragmatism prevailed above all else in Mexico's strategy towards OPEC.

"On a day-to-day basis Mexico hasn't been a supporter of OPEC policies," said Goldstein, noting the country had produced and exported what it wanted. "Only during crises has Mexico stepped up and supported on a temporary basis cuts in production."

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