The agreement was made possible by Saudi-Arabia’s concession to curb its own output by up to 350 000 bpd while allowing its arch-rival Iran to continue producing. It is hoped that Saudi-Arabia’s willingness to do a deal signals a new phase of relations between the two member states who have historically disagreed on oil policy.
The idea of introducing a country quota for oil output has long been in circulation, however, exactly how much each country will produce will not be decided until the next formal OPEC meeting in November. However, it will be important for OPEC to convince producers outside the group, such as Russia, to cap their output in order to truly kick start an oil price recovery.
Too little too late?
It remains to be seen whether the optimism that has sparked the increase in oil price will stabilise the market. The global oil industry currently produces an extra 1.5 million bbls more than needed each day, and a 700 000 bpd cut will certainly not eliminate the glut which has persisted since 2014. However it appears to a step in the right direction towards reducing the economic uncertainty that has plagued oil producers during recent years.
