OPEC Deal With Russia Is Showing Signs of Strain

Saudi Arabia's former oil minister Ali al-Naimi complained in 2014 that Russia never followed through on its promises to reduce production during the 2008-2009 financial crisis, and he assessed the chance of cuts at “zero." Under his successor, Khalid Al-Falih, Russia -- leading a group of non-OPEC states -- has engaged in unprecedented cooperation with the Saudi-guided Organization of Petroleum Exporting Countries. Rising oil prices reflect some market optimism, but strains are again showing in the deal, up for renewal or expiry in March 2018.

A failure to renew the accord would add further oversupply. Despite a bump in August, compliance is already weakening slowly. The conditions in the first half of this year were the most favorable: Russian production usually is stagnant in spring, due to weather. At the same time, Saudi domestic demand for power generation was lower, and Iraq and Iran struggled to boost output. Nonetheless, OPEC exports did not decline nearly as much as reported falls in production.