In November 2016, OPEC nations joined hands with other oil producing countries like Russia, Mexico, Kazakhstan and Oman to rebalance an oversupplied oil market helping the prices surge from a dramatically low point.

In doing so, nations that pump more than half the world’s oil, gathered in Vienna to make a landmark decision on cutting their production by about 1.2 million barrels per day (bpd) to 32.5 million bpd.

The agreement was marked as a historic deal since it literally saved the oil market from falling, it was the first univocal cooperation between crude producers after eight years.

Although during the first few months, production cuts pushed oil prices above $50, but it also made more high-cost U.S. output profitable, leading to a recovery in American drilling that threatened to spoil the cartel's bid to balance the market.

Five months after the implementation of the deal in January 2017, OPEC and non-OPEC once again felt the need to kick back at U.S. shale with nothing at hand but more cuts, they gathered in Vienna in July 25, 2017 and decided to expand the production cuts up to March 2018.

With the engaged countries complying to the deal at near 100 percent, and supported by Harvey hurricane which caused the U.S. shale industry’s lower activity for few consecutive months, the efforts finally paid off and the production cuts helped lift prices to two-year highs above $60 in Q3 2017.

However, the prices above $60 clearly hasn’t been as satisfactory as it seems, on one hand, many oil nation leaders say that the goal to rebalance the market hasn’t been fully realized yet and on the other hand, geopolitical motives like an upcoming IPO by Saudi Arabia’s Aramco have given incentives for pushing more to once again extending the cuts.

While the OPEC, non-OPEC deal expires in March 2018, numerous factors have piled up, leading to another landmark decision to be made in the oil industry. On November 30, OPEC nations are going to gather in Austria’s capital to, once again, discuss extending the production cuts, but this time the outcome is far from certain.

Contrary speculations

According to Bloomberg, this time, OPEC’s own forecasts could give members reason to think a full extension to the end of 2018 is unnecessary.

With predictions for a strong demand and a more modest expansion in production from non-members, inventories would decline at a rapid pace of 670,000 barrels a day through 2018 if the group and its allies keep supplies constrained.

“The latest OPEC figures could be interpreted as weakening the case for such a deal to already be agreed at the upcoming meeting,” Vienna-based consultant JBC Energy GmbH said in a report.

Many experts believe that the cartel should act cautiously in making any decision at this point since further capping of the OPEC output could lead to an increase in U.S. shale’s market share over the next couple of years, hence resulting in the inevitable fall in prices, along with a decline in OPEC's share of the market.

Furthermore, Russia which alongside Iran and Saudi Arabia was the architect of the historic cooperation between crude producers, is said to be unconvinced about the need for an extension.

Russian officials also argued that to extend the cuts further in 2018 means helping U.S. shale to seize the market again. Also, the cuts are already pressuring Russia’s sanctioned economy enough and it doesn’t seem that aside from all the face savings the country can handle more cuts or even extension of them.

On November 23, Russian Economy Minister Maxim Oreshkin said Russia’s economic growth in October was negatively affected by a global deal between members of OPEC and Russia under which Russia agreed to cut output by 300,000 bpd from its level in October 2016.

So, experts believe that having Saudi Arabia’s full support for the extension of the cuts, Russia is pursuing a new language (one that implies new terms in line with Russia’s economic interests) for the deal in case they agree with the extension.

In a report published just a few days before the OPEC meeting, Bloomberg says “OPEC and Russia have drafted the outline of a deal to extend their oil production cuts to the end of next year, although both sides are still hammering out crucial details, according to people involved in the conversations.”

Based on this report, it seems that the two main poles of the recent arguments on the cuts have come to an agreement and Russia is getting closer to come out of the meeting a victor.

However it is not to be forgotten that extending the cuts will have its own merits for other OPEC members like Iran as well, the country is planning to increase production in 2018 and consequently benefits from higher oil prices.

Iranian Oil Minister Bijan Namdar Zanganeh said on November 20 that most OPEC members support extending output cuts.

Now, with only 24 hours remaining before all these speculations get a straight answer, three scenarios seem possible as the outcome of OPEC’s 173th ministerial meeting.

As the Iranian chief economist and the country’s former OPEC envoy, Mehdi Asali, puts it, the first scenario would be the extension of the cuts up to the end of 2018. In this case the market will probably experience a gradual rise in prices but still U.S. shale would be expected to weigh on the market.

The second scenario would be the postponement of the decision-making to the next meeting in order to observe the market changes and then to decide on the duration and volume of the cuts. And finally the third and the most reasonable scenario would be the conditional and flexible renewal of last year's agreement. In other words, the deal would be extended considering the market demands for OPEC oil in 2018. That is, the cartel would consider an increase in demand as the International Energy Agency and the organization itself have forecasted, and will allow the members to increase production based on demand growth.

This way, not only the market will stay balanced but also the OPEC nations which are concerned about their budget deficit and economic situation will have the chance to make up, to some extent, for the barrels that are going to be cut.