Mexico, which hitherto has fallen in with Opec decisions, though it is not a member, said that it would wait to see how the oil market reacted before deciding whether to adjust its exports. Unlike other oil producers, Mexico has a large manufacturing sector that depends on the US economy: if the US economy is hobbled by the rise in oil prices, Mexico's economy will also suffer.
The Opec decision to lop another 1m bpd off the export quota, bringing the maximum down to 23.5m bpd from the beginning of April, was much more than most analysts had expected. Just before the meeting, which took place in Algiers, the Saudi Arabians had been hinting that they did not want to see the price moving beyond the range of US$22 to US$28 a barrel. It has averaged over US$30 a barrel in four of the past five months. Other Opec members argued that the fall in the price of the dollar on the foreign exchange markets meant that in real terms the oil price has fallen.
What makes the Opec decision so odd is that another major oil producer and exporter, Russia, which is not a member of Opec, announced that it expected to increase production (and thus exports) by 10% this year.
Mexico currently produces 3.37m bpd and exports 1.86m bpd. Virtually all its exports (around 90%) go to the US.
The level of the oil price is of crucial importance to Mexico. Oil supplies just over a third of the government's revenues. The surge in oil prices in 2003 meant that the government avoided having to make spending cuts. Oil revenues, at US$48.5bn, were about US$6.4bn higher than the government had budgeted. In 2003 the government had forecast an oil price of US$18.5 a barrel. In fact the price averaged US$24.7 a barrel. Export levels were also slightly higher than the government had forecast, at 1.8m bpd rather than the forecast 1.6m bpd.
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