The members of the Organization of Petroleum Exporting Countries (OPEC) made a historic agreement in Vienna, for the first time in eight years on a concerted production freeze at 32.5 million barrels per day in order to fast track the markets rebalancing and increase producers’ reserves. Ecofin Agency spoke with Francis Perrin, the chairman of Strategy and Energy Policy and the Editor of Arab Oil & Gas on this new development.

EA: OPEC has finally agreed to a production cut for the first time since 2008, what do you think is next for oil, for the winners and losers of the production cut deal and also what do you think is ahead for producers?

Francis Perrin: It was the first production cut since 2008, it is true, but we must go back to the basics. Between 2010 and the summer of 2014 oil prices were at very high levels and OPEC did not have any reason to cut its output during this period. What is more relevant is that it is the first production cut since the beginning of the fall in crude prices during the summer of 2014.

This is good news for all producers, whether members of OPEC or not. If this agreement results in a lasting rise in oil prices it will mean higher export revenues, higher budget revenues, more economic growth and less suffering for the populations of the producing countries. There will be no losers among producers if prices are pushed upwards. Most OPEC countries will have to cut their output but they will gain from higher oil prices.

So far so good. Over the three days between 30 November and 2 December oil prices rose by more than 15%. This is so far a very profitable agreement.

EA: Almost two years ago, OPEC embarked on a production policy different from what they are adopting presently. Do you think the group will be able to sustain this policy and not in the next two years change it again?

Francis Perrin: As James Bond told us, “never say never again”. The decision adopted on 30 November by the OPEC Conference can be changed by another meeting of the Conference. OPEC is a very pragmatic organization and it will adapt to changing times. But OPEC member states should at least maintain their present policy for the whole of 2017.

EA: Let's take a look at Indonesia, just 10 months after rejoining the group, the country decided to suspend its membership in order to not be part of the deal. What do you see to that and with the country out of the game, how do you think OPEC was able to arrive at a production ceiling of 32.5 million bopd?

Francis Perrin: The return of Indonesia is not a great success. It is obvious that a suspension decided less than one year after the reactivation of Indonesia membership is a blow for this country and also for OPEC. But Indonesia is producing about 750,000 barrels per day of crude out of a present OPEC production of 33.5-34 million b/d. Its share is thus slightly higher than 2%. It is not a big deal.

EA: Do you think both OPEC member and non-OPEC members will be successful in implement this changes?

Francis Perrin: It is the key issue. OPEC's track record in this respect is not always very good. That being said we may be cautiously optimistic as the member countries of the organization have faced very challenging times over the period since the summer of 2014. This experience will very likely make them wiser, at least in the short-term.

There is also a question mark as far as Russia is concerned. This country's Energy Minister wanted a freeze and not a cut. At the end of the day they accepted a small reduction (300,000 b/d) over the first half of 2017 but Russian statements on this issue are not always crystal clear and their oil companies are not very happy. We will have to follow closely the future talks between OPEC and non-OPEC countries over the next few weeks and months with a special look on Russia.

EA: Looking at the countries exempted from this deal, do you think in their effort to gain back production, they might flood the market again?

Francis Perrin: No. Of course Libya has a great potential as its crude output fell dramatically since the beginning of 2011. But the political and security situation of this country remains very difficult and very complex and they will need some time to recover their past capacities. Nigeria has swiftly rebounded before the OPEC meeting but nobody can say that the Niger Delta is now a peaceful area. As for Iran they have succeeded in increasing very strongly their oil output and exports since January 2016, which means that their potential for further short-term rises is very limited.

EA: The High-Level Technical Committee set up by OPEC before the November 30 deal, proposed that the duration of the deal will be for one year from January 2017, and will be revised after six months.

Francis Perrin: It is a good recommendation. If the deal covers a very short period it will not have the same impact on the markets. It is very likely that the oil market will rebalance itself next year but we must not forget that there are two main conditions for a lasting bullish impact: the oversupply of oil must be eliminated and world oil stocks must be reduced. One year will not be too much for this. It will not be easy for several OPEC members to respect their quotas during at least one year but it is necessary.

AE: The group are to meet again by March 25th, 2017, for a review, do you think they will continue to sustain this allocations and not decide to adopt another policy?

Francis Perrin: I do not expect any change over the first half of 2017. The next ordinary meeting of the OPEC Conference will take place on 25 May. And my best advice to OPEC countries would be to maintain their production ceiling for the whole of 2017, except in case of unforeseen circumstances.

EA: On the supply and demand side, what is the outlook for the market for 2017?

Francis Perrin: World oil consumption is up, non-OPEC production is down and OPEC production should be reduced next year if the Vienna agreement is seriously implemented. Such a market situation should lead to a fall in oil stocks in 2017, which would be good news for producers. It is the most likely scenario for the next year.

Interview by Anita Fatunji