How OPEC Is Holding Its Oil Output Curbs in Place

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How intent is the Organization of Petroleum Exporting Countries to stick to output curbs put in place 18 months ago? Intent enough to raise oil production to keep the agreement in place. The global petroleum-cuts pact reached in late 2016 by OPEC’s 14 members and 10 non-members including Russia, succeeded in ending a three-year slump in the price of oil. Now OPEC and its partners have reached a follow-up deal allowing Saudi Arabia and Russia to achieve their goal of raising oil production -- which may partially soothe consumer concerns after benchmark Brent touched $80 a barrel in May.

1. What exactly is OPEC doing?

It agreed to boost oil production from July 1, an 11th-hour compromise after Iran initially threatened to veto any supply hike. The 14-nation cartel, with its allies, will bring production cuts back to the target of 1.8 million barrels a day, set in 2016. While in theory that could mean extra output of 1 million barrels a day, in practice the figure could be lower -- 600,000 to 800,000 barrels a day -- as some producers are unable to pump more. This will be accomplished by some nations such as Saudi Arabia effectively rolling back deeper-than-intended cuts.

2. Is this a change of course?

Not exactly. The output curbs of late 2016 -- forged among OPEC and 10 oil producers outside the cartel -- remain in place. In an acknowledgment of how successful that pact has been in raising prices, the cartel recommitted itself to aim for 100 percent compliance with the deal. That’s a group target, which will give scope to nations such as Saudi Arabia and Russia to increase output. It also implies a transfer in market share from Venezuela and Iran.

3. Was OPEC swayed by political pressure?

Perhaps. OPEC has been buffeted by competing geopolitical agendas. Some of the world’s biggest consumers -- the U.S., China and India -- have pushed the group to open the taps, while Venezuela and Iran want higher prices to compensate for the impact of American sanctions. U.S. President Donald Trump criticized OPEC on Twitter for inflating the cost of fuel. His administration quietly asked Saudi Arabia and some other OPEC producers to increase oil production by about 1 million barrels a day. The kingdom has been quick to acknowledge the needs of consumers in recent weeks, even as it sought to preserve the hard-won unity of OPEC and its partners.

4. What explains Iran’s dissent?

On Thursday evening, a deal looked to be slipping away after Iranian Oil Minister Bijan Namdar Zanganeh walked out of a meeting with fellow ministers, predicting nobody could persuade him to back an increase. Iran has bridled at Trump’s intervention into the cartel’s policy. Zanganeh has said the U.S. president is to blame for high prices because of his unilateral withdrawal from the international nuclear agreement and the imposition of fresh sanctions that could significantly curb Iran’s crude exports.

5. What does this say about OPEC’s continuing influence?

OPEC’s obituary has been written many times, but since its creation more than a half-century ago, the cartel has been jolting the world. It’s latest alliance has already defied many doubters as the world’s two largest oil exporters -- Saudi Arabia and Russia -- increasingly dominate policy discussions. Those two heavyweights are even considering inviting all 24 countries to join a permanent body with its own constitution and secretariat. That would mark a seismic shift in oil’s world order.

6. What does this mean for oil prices going forward?

Oil prices reacted favorably to OPEC’s compromise deal, with futures in the U.S. gaining as much as 4.9 percent as ministers left their meeting in Vienna. OPEC stressed that it targets market stability rather than prices, but the longer-term outlook for both looks uncertain. Saudi Arabia might agree with Iran’s analysis that $70 is a very good price for oil, while Russia is prepared for a slightly lower level. Much will depend on how much extra crude comes back on to the market, the robustness of American shale drillers, the fate of Venezuela’s crisis-hit oil industry and the impact of U.S. sanctions on Iran.

The Reference ShelfThis Bloomberg graphic shows which countries are reaching their targets for oil production cuts.OPEC enshrined its main objectives in a 1961 statute.QuickTake explainers on shale’s threat to OPEC