Opec has won the backing of countries outside the oil cartel to join supply cuts for the first time since 2001, overcoming the final major obstacle for a global agreement to curb output.
Russia, the biggest oil exporter outside the group, alongside 10 other countries such as Mexico, Oman and Azerbaijan on Saturday agreed to reduce their production by 558,000 barrels a day.
A new geopolitical dynamic is being created which could be transformative for oil markets
The agreement in Vienna is designed to speed the end of the worst oil downturn in a generation by mopping up excess supplies and boost prices, providing some relief to resource-rich nations whose economies have taken a big hit.
“Today’s agreement will accelerate the stabilisation in the markets,” said Russia’s energy minister Alexander Novak. Moscow last week committed to reduce production by 300,000 b/d from its more than 11m b/d of current output — a post Soviet era high.
Prices have rallied by 15 per cent since November 30, when Opec’s 13 members led by the group’s largest producer Saudi Arabia, agreed to curb output by more than 1m barrels a day. Khalid Al Falih, the kingdom’s energy minister, said on Saturday he hoped the deal could help create a new framework to manage a “fragile” oil market.
Saudi Arabia, which last week agreed to cut production to just over 10m b/d, could make a deeper cut than agreed last week, Mr Falih added.
The kingdom had said last week’s Opec deal — aimed at bringing the group’s production to 32.5m b/d — was contingent on participation from non-Opec countries, primarily Russia.
“Securing non-Opec’s full participation in the Opec agreement reached in Vienna is a victory for Opec and especially Saudi Arabia, which has long insisted the burden of cuts needed to be shared,” said Jason Bordoff at the Center on Global Energy Policy at Columbia University.
Moscow has said its involvement is based on Opec’s compliance with cuts.
While a committee has been set up to monitor producers’ cuts, that start from January 1 for six months, industry analysts have said historically it has been rare for either Opec producers or Russia, to fully stick to their sides of the bargain.
Even so, Abhishek Deshpande at Natixis, said: “There is limited doubt, even if there was limited compliance, that their action should help balance markets earlier in 2017 than was otherwise expected.”
“This is a very historic meeting,” Opec’s secretary-general Mohammed Barkindo said ahead of Saturday’s meeting.
Brent crude, the global benchmark, closed up 38 cents at $54.33 a barrel on Friday. This is a jump from $46 a barrel before last month’s agreement, but still less than half the level of the mid-2014 peak of $115.
The industry will be watching closely to see whether the jump in prices revives the US shale industry, which was targeted alongside other high-cost producers by Opec two years ago when it decided to remove production constraints.
Opec delegates said ahead of the meeting that they expected non-Opec commitments to tally around 600,000 b/d and they would come in the form of production cuts as well as natural declines.
Mohammed Bin Saleh Al-Sada, Qatar’s Minister of Energy and Opec president said just before the ministerial discussion got under way: “There is a growing consensus among producers that the market recovery process has taken far too long, with severe consequences.”