Opec/Russia ‘Historic’ Strategic Alignment: Can It Hold?

Saudi Arabia managed to hold the fragile 24-member coalition of Opec and 10 non-Opec states (Opec+) together during a mammoth set of meetings on 30 November to secure a nine-month extension to production cuts. The stated goal is achieving market stability to reassure both producers and consumers, and encourage renewed upstream investment, particularly in long cycle projects. A lofty ambition. But is it achievable?

The extended deal was labeled an “amendment” to the existing deal, and a “roll-over” to 31 December 2018 by Saudi Energy Minister Khalid al-Falih after the meeting.

Other than the end-date, previously March 2018, the details of the agreement remain the same. Opec is to produce at a level 1.2mn b/d below its baseline agreed on in November 2016, and the non-Opec participants will contribute a further 550,000 b/d.

Although the deal runs to end-2018, it will be reviewed when the participants gather in Vienna at the next Opec ministerial meeting in June 2018. At that point “further adjustment actions will be considered based on prevailing market conditions and the progress achieved towards re-balancing of the oil market at that time.” In effect therefore, the agreement is a three-month extension dressed in the market-reassuring garb of a nine-month extension.



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