Credit
Lisi Niesner/European Pressphoto Agency
Russia and other oil producers agreed on Saturday to join OPEC nations in a rare, coordinated reduction in oil output meant to lift petroleum prices and revenues to shore up their sagging government budgets.
The agreement on Saturday, reached at OPEC headquarters in Vienna, was the latest attempt by producers led by Saudi Arabia to adjust output in an effort to influence crude markets. The oil-producing nations outside the Organization of the Petroleum Exporting Countries agreed to cuts of 558,000 barrels per day, according to a statement after the meeting.
While the deal is eye-catching, it follows months of unrestrained production increases. Analysts said it could be difficult to precisely monitor just how much oil producers are pumping, and that countries like Russia have rarely shown a willingness to cut production or to cooperate with others. “It may all come to seem an optical illusion,” said Bhushan Bahree, an OPEC analyst at IHS Markit, a research firm.
The cuts, if carried out, will amount to only around 2 percent of the overall global oil market. But they are likely to be perceived as significant by oil traders because the world’s two largest exporters, Saudi Arabia and Russia, are involved.
The agreement comes less than two weeks after OPEC members reached their own agreement on production cuts. It seems likely to help continue to lift oil prices, which have risen by more than 15 percent since Nov. 29. The international oil benchmark, Brent crude, is now trading at about $54 per barrel. Still, some analysts said these price levels, which are only about half those of two years ago, may be unsustainable. In the current market, major exporters like Iran, Russia and Saudi Arabia are locked in a struggle for market share, particularly in Asia, and will not want to see rivals increase sales at their expense.
This agreement, like similar ones in the history of the oil industry after price busts, may “enjoy temporary success, particularly at influencing sentiment and thereby supporting near-term oil prices, but eventually will succumb to the temptation by members to increase production,” said Robert McNally, president of the Rapidan Group, a market research firm based in Washington.
The agreements in recent weeks are an about-face for the Saudis and their allies like Kuwait and the United Arab Emirates, which for two years pursued policies of elevated oil output aimed at driving down prices to squeeze out higher-cost producers in the United States and elsewhere. The experiment has had mixed results, as output in the United States has proved more resilient than some analysts expected while the resulting low prices have sapped the finances of countries like Saudi Arabia and Russia, which depend on oil revenues.
The rare cooperation with large producers outside of OPEC is an indication of how worried the Saudis and other exporters are about the fall in prices, particularly the plunge below $30 per barrel last winter. In the ensuing months, the big producers have engaged in lengthy negotiations for production restraint measures aimed at influencing the markets.
At its meeting last month, OPEC published for the first time in years a detailed list of production ceilings for individual countries. Saudi Arabia will make the largest cuts: 486,000 barrels per day, or close to 5 percent of its production.
To maintain the perception that cuts are on the way, the Saudis are already saying they have told their customers of reductions in January, when the output restraints are supposed to go into force.
