In an effort to boost oil prices, the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC members, including Russia, reached an agreement on November 30 to extend output cuts through the end of 2018.

The world’s largest oil producer, OPEC kingpin Saudi Arabia had insisted to extend the oil production cuts.

At a news conference with Russian Energy Minister Alexander Novak, Saudi Energy Minister Khalid al-Falih said he would be “breathing down the necks” of the 24 countries who are now party to the agreement to ensure that they stuck to their commitments, the NYT reported, noting that Falih also announced that Libya and Nigeria, OPEC members that had been exempt from the production agreement because of hardship and had boosted output, had promised not to exceed their 2017 production levels next year.

OPEC and the participating non-OPEC countries desire to achieve oil market stability in the interest of all oil producers and consumers, the oil cartel said in a press release.

OPEC member countries vowed in November 2016 to reduce their crude production by 1.2 million barrels a day from October 2016 levels to 32.5 million barrels a day. Several non-OPEC producers, including Russia, joined the agreement, promising an additional cut of nearly 600,000 barrels a day. The deal was implemented in January and the cuts were set to end in March of 2018.

In his opening speech at the OPEC conference in Vienna, al-Falih noted that to succeed going forward, “it is essential that we continue to maintain unity within OPEC. But let me hasten to add that without the support of our non-OPEC partners, the encouraging situation we see today would not have been achieved”.

Justin Urquhart Stewart, director at Seven Investment Management in London, told New Europe by phone on December 1 that to experts’ amazement, “the previous agreement actually held given that OPEC is a very unreliable monopoly group and, of course, the agreement they had with Russia. However, it has been successful so far so I suspect it’s probably quite likely to continue for the time being especially as the price has been rising to quite reasonable levels”.

Urquhart Stewart said it is unlikely that extending the production cut agreement through the end of 2018 will drive the oil price significantly higher but, on the other hand, it’s also a measure of global economic growth that will lead to an increasing demand for oil. “So it’s in their interest to keep the agreement together and I think, despite peoples’ cynicism like me actually, it’s likely to continue. But I can’t see it necessarily pushing the price considerably higher than where it is now,” the London-based analyst said.

Regarding Russia, Urquhart Stewart reminded that Russian President Vladimir Putin is aware that he has elections coming up in March and needs a sustainable oil price to fund his social problems. “It’s fascinating at the moment when you got the Russians who appear to be on the side of the Iranians and not on the side of the Saudis,” he said, but, on the other hand, Putin will try to get any agreement that can support that oil price. “He would definitely wish to give an impression of being able to manage that oil price to his voters and if you can see the price being at a sustainable level that’s what he would like to shine and show that he can manage the relationship not just with Iran but also with Iran’s enemy – Saudi – then it makes him look far more statesman-like and that’s in the eyes of his voters,” Urquhart Stewart told New Europe.

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