Russia’s decision boosted the oil price, which reached its highest level in two weeks in response to the news. Benchmark Brent crude climbed on 5 December to $20.07 a barrel, an increase of $1.19 a barrel over 28 November. The OPEC basket of crudes was valued at $18.20 on 4 December, a rise of $0.80 from 27 November. The organisation had been warning of the possibility of a significant oil price crash if the cuts were not made. ‘Failure to act now could result in an unimaginable price crash in the second quarter of next year,’ said OEPC Secretary-General Ali Rodriguez on 30 November.
At its 14 November meeting in Vienna, OPEC decided to slash output by 1.5 million b/d in the first quarter if non-OPEC producers could muster a cut of 500,000 b/d. Russia is the largest non-OPEC producer with output of more than 7 million b/d. Other major producers Mexico and Norway have also agreed to reduce their output, as has smaller player Oman. ‘Norway has decided to cut between 100,000-200,000 b/d, but there is no decision yet on when it would take effect or how big it will be,’ said Brit Skjelbred, Norwegian deputy oil & energy minister after the Russian decision.
Any cuts in non-OPEC output will put pressure on OPEC members to improve their own quota discipline. In September, the organisation was estimated to have produced some 1.1 million b/d more than its quota. In November, the surplus was expected to be little more than 300,000 b/d.
One potential pitfall for the organisation is the growing tension in Venezuela between President Hugo Chavez on one side and business and trade unions on the other. The new cohesion forged among OPEC members in response to the oil price crash of 1998 was in large part due to Chavez’s commitment to end Venezuelan overproduction. A major strike was called for 10 December against Chavez’s reform policies, which include the return of the oil industry to state control.