The informal OPEC meeting on the sidelines of the International Energy Forum in Algeria has brought some positive news. The petroleum exporting countries signed a preliminary agreement to cut production to 32.5-33 million barrels per day. In comparison, output reached the record high of 33.24 mbpd in August. The agreement will turn into a binding deal and will be finalized in November after the next OPEC meeting in Vienna. Importantly, Russia didn’t participate in the talks but defined its position having stated that “it would find the way to freeze output” if an agreement with OPEC was reached.
Many analysts don’t share common optimism regarding the agreement due to its ambiguity. Besides, this deal has too many details and the risk of cancellation is too high. It is not quite clear how the observance of the agreement will be controlled, what new quotes the countries will get, and how long the validity period will be. Moreover, if oil prices start to rise in response to the production cut, it will result in rapid output growth in non-OPEC countries. Reportedly, the OPEC plans to define limits for every country at its next meeting in November. Other major non-OPEC producers such as Russia are likely to be invited to this meeting.
