Global oil prices are back above U.S.$50 a barrel. Members of the Organization of Petroleum Exporting Countries have agreed to cut production for the first time since 2008.
Even as OPEC ministers arrived, a deal was not certain. But if there is one thing nearly all this oil cartel’s members can agree on, it is that prolonged low prices have left a black hole in their balance sheets. The cost of continued division, it seems, had become just too dear.
“The agreement: that OPEC reduces production by 1.2 million barrels a day, to bring its ceiling to 32.5 million barrels per day, effective January 1, 2017," said Mohammed Bin Saleh Al-Sada, OPEC president.
An overall OPEC quota, in principle, was announced two months ago. Since then, rivals had been wrangling over how much each of them should cut. At the heart of the stand-off were Saudi Arabia and Iran. Away from the negotiating table, they are on opposite sides of proxy wars in both Yemen and Syria. Each has very different priorities.
“Saudi Arabia has benefited in terms of taking market share from Iran and Iraq because of the war and because of sanctions,” said Cornelia Meyer, analyst of Meyer Resources.
“However, if you’re Saudi Arabia, you have a population growth in excess of 2 percent, you have a youth bulge, you are trying to re-tool the economy, wean it away from the dependency of oil production. So you need to finance that somehow.”
In the end, both compromised. Tehran will freeze production close to current levels; Riyadh will cut its output by 486,000 barrels.
Non-OPEC producers may be on board, too, something Russian president Vladimir Putin had pushed for, though there also lies the potential catch.
Analysts around this meeting see one big caveat: and that is that this whole deal appears to hang on non-OPEC countries explaining exactly how they will implement their commitment to cut production by 600,000 barrels a day. It is thought likely Russia will pledge about half of that. As to the rest, officials admit that is yet to be finalized.