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Watch: OPEC/non-OPEC deliver a nail-biter in Vienna

OPEC and its non-OPEC allies produced a humdinger of a meeting last week by agreeing to cut 1.2 million b/d from January to shore up oil prices but the response has been rather muted. S&P Global Platts senior editor Eklavya Gupte, who was present in Vienna, looks at the some key issues that the producer coalition faces as it heads into 2019.

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Welcome to The Snapshot – our series examining the forces shaping and driving global commodities markets today.

STRAPLINE: OPEC agrees to cut output to shore up prices

They did it. After a contentious meeting, OPEC and its 10 non-OPEC allies led by Russia agreed to cut 1.2 million b/d of production from six months starting January with a review in April.

This meeting had the ebb and flow of a riveting sports match and it also had all the attributes of a thrilling Netflix series, replete with last-minute surprises and wildcards.

The finale was worth waiting for especially as the OPEC meeting carried on to Friday with fraught negotiations even as key oil ministers played down the chances of an agreement.

This was a humdinger. Even OPEC delegates acknowledged the meeting was extremely contentious, with Qatar announcing it was quitting the group before the meeting began.

At the eleventh hour a compromise was reached amid a divided political backdrop.

The question now turns to whether the producers can deliver and whether it will be enough.

OPEC said it would cut 800,000 b/d under the deal, or 2.5% of production for each member, with the 10 non-OPEC partners slashing 400,000 b/d, or 2%.

IMAGE: Crude flows from key OPEC producers since cut deal

Libya, Venezuela and Iran were granted special considerations and were relieved from undertaking output curbs despite this subject being a bone of contention during the talks.

Saudi Arabia and Russia being the two largest producers are expected to bear the burden of the cuts, though these cuts will occur right after both pumped at all-time highs in the past few months.

The recent exit of Qatar from OPEC is also symptomatic of the weakening ties between members, as Saudi Arabia and non-OPEC Russia have taken the reins of output policymaking over the past two years.

This result may not be able to fully conceal the fractures that still exist amongst some of the members and such cracks are likely to rear their ugly head soon especially as US continues unrelenting pressure on Iran and its beleaguered oil sector.

IMAGE: OPEC crude production vs Brent

The dramatic fall in oil prices along with a sharp rise in US production almost cornered OPEC in cutting output next year. Unlike in November 2014, the coalition obliged this time.

Looking forward, 2019 looks a tricky year for OPEC.

US oil production has surged ahead so far this year, with output poised to surpass 12 million b/d in 2019; the shale juggernaut persists.

US oil production has risen almost 3 million b/d since January 2017 when OPEC and its non-OPEC allies first cut output in January 2017.

More significantly, the US has now emerged a net exporter of oil for the first time in more than 70 years, which has altered the dynamic between America and other oil producers.

STRAPLINE: OPEC defies Trump but provides relief to US shale

This decision was taken to shore up flagging oil prices and prevent a supply surplus building. Analysts generally feel that the cuts if implemented as promised could have a supportive impact.

The physical oil market has gradually weakened in the past few weeks amid a rise in inventories as global oil demand also shows signs of slowing down.

The decision to cut could also prove awkward for Saudi Arabia, after US President Donald Trump again urged the kingdom and OPEC to keep output flowing.

Trump has repeatedly accused OPEC of anticompetitive practices since coming to office and these demands are unlikely to stop.

The 25-country OPEC/non-OPEC coalition will meet in Vienna again in April to assess progress amid concern over the health of the global economy and the impact of trade wars on demand.

The weight of expectations for the coalition to deliver another blockbuster is already being senses.

Until next season, it is a goodbye for now!