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OPEC, Non-OPEC Agree 1st Pact Since 2001
OPEC, Non-OPEC Agree 1st Pact Since 2001

OPEC, Non-OPEC Agree 1st Pact Since 2001

OPEC, Non-OPEC Agree 1st Pact Since 2001

OPEC and non-OPEC producers on Saturday reached their first deal since 2001 to curtail oil output jointly and ease a global glut after more than two years of low prices that overstretched many budgets and spurred unrest in some countries.

On Saturday, producers from outside the 13-country group agreed to reduce output by 562,000 bpd, slightly short of the initial target of 600,000 bpd, according to two OPEC sources, Reuters reported.

With the deal finally signed in Vienna after almost a year of arguing within the Organization of Petroleum Exporting Countries and mistrust in the willingness of non-OPEC Russia to play ball, the market's focus will now switch to compliance with the agreement.

Russia, which 15 years ago failed to deliver on promises to cut in tandem with OPEC, is expected to perform real output reductions this time. 

On Dec. 30, OPEC agreed to slash output by 1.2 million barrels per day from Jan. 1, with top exporter Saudi Arabia cutting as much as 486,000 bpd. Libya and Nigeria are exempt from the OPEC output cuts, while Iran has some room to boost its output.

Analysts question whether many other non-OPEC producers are attempting to present a natural decline in output as their contribution to the deal.

"They are all enjoying higher prices and compliance tends to be good in the early stages. But then as prices continue to rise, compliance will erode," said veteran OPEC watcher and founder of Pira Energy consultancy Gary Ross.

"Non-OPEC has also made the largest contribution we have ever seen," said Ross, adding that he believed Russia would curtail output in line with its pledge of 300,000 bpd.

Oil prices have more than halved in the past two years after Riyadh raised output steeply in an attempt to drive higher-cost producers such as US shale firms, but it also hit the revenues of oil-dependent economies including Saudi Arabia and Russia, prompting the two largest exporters of crude to start their first oil cooperation talks in 15 years.

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