Through compromise and arm-twisting, OPEC oil ministers managed to put flesh on the bones of the output cut they announced in Algeria in September. But their hard work might be undermined by the countries exempted from the deal: Libya and Nigeria.
Much of the 1.166 million barrels a day of agreed cuts could be offset by increases from these two countries -- at least, if things go as their governments hope.
The deal itself was a masterclass in compromise and peer pressure. Saudi Arabia and Iran both gave ground, showing again that OPEC can function even when members are fighting each other elsewhere. Iraq gave up its insistence on using its official production numbers as the basis for cuts. There was a cost, though, as Indonesia's brief return to the group ended after just 11 months.
Iraq wasn't the only member to see a big difference between its own figures and those from secondary sources. Now, though, it faces the difficult task of assigning its first ever OPEC-mandated output cut.
Saudi Arabia stepped back from its insistence that Iran must, at the very least, freeze production at the current level. In return, Tehran dropped a demand that those who boosted output in recent years -- namely Saudi Arabia -- should bear the burden of cuts. It endorsed a deal that legitimizes Saudi Arabia's 2 million barrels a day of growth since the start of 2011.
OPEC's first test is to get non-OPEC producers to cut too. But the bigger challenge will be delivering on its own target.
Non-OPEC participation may amount to little more than dressing up expected declines as something new. Russia's offer to trim production by as much as 300,000 barrels a day is suspiciously close to earlier comments that a freeze would leave it 200,000-300,000 barrels below its planned daily output in 2017. Mexico denies that it will make the 150,000 barrel cut envisaged by OPEC, but it expects output to fall anyway next year.
The group's own members are more important. Even if you assume everyone delivers promised cuts in full, Libya and Nigeria were granted exemptions and both hope to raise output.
Libya's October production was 528,000 barrels a day, according to OPEC's secondary sources. It's expected to be close to 600,000 barrels in November and the National Oil Company hopes to lift it to 900,000 by the end of the year and 1.1 million barrels in 2017.
Then there's Nigeria. Its output was reported at 1.628 million barrels a day in October, after attacks on pipelines. The country's oil minister says production's already back at 1.95 million barrels, though this may include as many as 150,000 barrels of a light oil called condensate that OPEC excludes from quotas. He hopes to restore output to about 2.2 million barrels a day.
If Nigeria and Libya succeed -- a very big if, admittedly -- the overall OPEC output cut could be reduced to a paltry 22,000 barrels a day. That's obviously an extreme case, but every extra barrel they produce will chip away at the cuts made elsewhere. All this means that OPEC may have to do more than just roll over this week's deal when it next meets -- at least, if it really means to re-balance the market in a lasting way.
Elaine He contributed graphics.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
To contact the author of this story:
Julian Lee in London at email@example.com
To contact the editor responsible for this story:
James Boxell at firstname.lastname@example.org