Julian Lee is an oil strategist for Bloomberg First Word. Previously he worked as a senior analyst at the Centre for Global Energy Studies.

OPEC oil ministers will meet on Nov 30 to agree their first output cut since the 2008 financial crisis. The deal will be "a total success," according to Venezuela's president. His oil minister had already called it "a historic agreement, one that's never been seen before."

Stirring stuff to be sure, but can they deliver? The balance of expectations favors an agreement. OPEC has invested too much credibility to fail. That may be so, but a similar investment didn't save the deal to freeze output that collapsed at the last minute earlier this year.

More Than You Say
Most members say OPEC's secondary source estimates of their production are too low
Source: OPEC
NOTE: Official production figures minus secondary source estimates published by OPEC NOTE: OPEC did not report official production numbers for Gabon, Indonesia or Libya for October

The positions of Iran and Iraq will probably be critical. Iraq's prime minister has said the country will cut output, but the argument over what level of production it would accept as a starting point for any reduction seems to rumble on.

Iran is said to have been offered the option of freezing output at the current official output level of 3.92 million barrels a day. But, as I pointed out last week, that would force it to tacitly endorse the 2 million barrel a day increase in Saudi output since 2011, something it could find extremely difficult. OPEC officials meeting in Vienna last week failed to resolve either issue, deciding to leave them for ministers to wrestle with on the 30th.

Different Fortunes
Saudi Arabia's oil output has risen by 2 million barrels a day since January 2011, Iran's is unchanged
Source: OPEC
NOTE: Difference in production versus January 2011, as assessed by OPEC secondary sources

Then there's the question of support from non-OPEC producers.

OPEC does have history of coordinating cuts with non-member countries. In November 2001 the group agreed to reduce supply by 1.5 million barrels a day, but only if non-OPEC producers contributed another 500,000 barrels of cuts. They got enough commitments to go ahead, although there was much discussion afterwards about how much of the promised reduction actually happened.

This time around there's also ample evidence that OPEC is looking for external support, although this has yet to go as far as specifically linking OPEC cuts to non-OPEC action. Russia's energy minister says OPEC has asked for 500,00 barrels a day of non-OPEC cuts, his Azerbaijani counterpart put the figure at 880,000 barrels. If Saudi Arabia is really determined not to resume its role as the world's swing producer -- and there's nothing to suggest otherwise -- this may be an attractive mechanism to share the burden. But it carries risks.

Russia has said it will only consider its own contribution after OPEC has presented it with an internal agreement to cut supply. Moscow prefers freezing output at its current post-Soviet record level of about 11.2 million barrels a day, claiming this represents a cut of 200,000 to 300,000 barrels a day from planned output in 2017. 

Russian Record
Russian oil output hit a post-Soviet record of 11.2 million barrels a day in October
Source: Bloomberg

In the end, it'll come down to one question: how much does Saudi Arabia want, or need, a deal? If it's willing to abandon the policy to protect its market share that it set in motion two years ago, a deal can be done with relative ease. If not, the situation is far less certain.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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Julian Lee in London at

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