To know if the OPEC strategy works, we will have to wait. It is not the first time that the cartel of oil producers threatens to cut production to boost prices and the impact is deflated a few weeks later. Sometimes, because after the cut is not so drastic. Others, because the weakness of the demand (and the supply of other markets) ends up making the snipping insufficient. But the oil cartel remains very powerful: OPEC and its allies control about half of the world's oil production.
The agreement this Friday did not leave indifferent to the market, which responded with price increases. Especially because it was larger than expected. On Thursday, at the Vienna meeting, OPEC members seemed to hesitate and they decided to wait for today's session, to which allied and non-OPEC countries came, led by Russia, to which they hoped to embark on the cut. That's where the definitive green light came from: between all of them, 1.2 million barrels a day will be removed from the market.
"The OPEC countries will contribute 800,000 barrels per day to the cut, non-OPEC countries will contribute 400,000 barrels per day," Emirati Oil Minister Suhail Mohamed al Mazruei told a news conference after the two-day meeting. The objective is for the price of the barrel to oscillate around 70 dollars, instead of the current 60.
According to Carlos Perez, the energy minister of Ecuador, the pact is for member countries (such as Ecuador) to cut production by 2.5% from its October level and by 2% for the nine allied countries (but not OPEC) ) that sign the agreement.
The conflicting interests of different countries in the cartel suggested that the agreement might be complicated at this time. However, the differences were smoothed. Iran was one of the pitfalls of the strategy, but will be exempt from the cut so that it can compensate for the effects of the embargo imposed by the United States. Venezuela and Libya are also being spared, given their problems to produce with the quotas already allocated now. "OPEC has agreed to take into account the special circumstances of some countries and their percentage will be redistributed among the rest," the Emirati minister said.
In addition, Russia mediated between Iran and Saudi Arabia, rivals within OPEC, partly because of the proximity of the second to the United States. And Saudi Arabia finally agreed to put downward pressure on production to raise prices, even though Donald Trump asked on Thursday to keep costs of crude oil.
"I am confident that our resolve, our professionalism and our will to achieve results are as strong as ever," said Russian Energy Minister Alexander Novak on the so-called OPEC + coalition. "Under the current conditions, it is extremely important to send a strong signal to the market," he said, according to Bloomberg.