On Friday, “OPEC +” resumed talks on increasing oil production after the UAE blocked an agreement the previous day, which led to a confrontation that could lead to a reduction in crude supplies in the market and another increase in prices, which have already risen to the highest level in two and a half years.
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| “OPEC +” seeks consensus on increasing oil |
In the absence of an agreement so far, the "OPEC +" alliance may maintain tighter production restrictions.
Oil prices are currently trading at around $75 a barrel, up more than 40% since the beginning of the year, while consumers want more crude to support the global recovery from the "Covid-19" pandemic.
The UAE halted an agreement backed by the two largest producers; Saudi Arabia and Russia, to increase production by two million barrels per day by the end of 2021 above the agreed-upon 5.8 million barrels, and to extend the rest of the existing restrictions until the end of 2022 instead of ending them in April.
Talks between the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers, the alliance known as "OPEC +", are scheduled to resume today.
And if the UAE obstructs reaching any agreement, those remaining reductions will likely remain in effect, and there is a small possibility of the agreement collapsing, and all countries may pump crude as much as they want.
Reuters quoted sources in "OPEC +" as saying that the UAE does not oppose the principle of increasing the group's production, but it wants its production to rise.
It says its baseline, the level of production at which cuts are calculated, was already too low, something it was willing to turn a blind eye to if the deal expired in April.
The agency also quoted other sources as saying that the UAE wants the baseline for its production to be set at 3.8 million barrels per day, compared to the current level of 3.168 million barrels per day.
If the baseline changes, it could mean that more oil will be added to the market than planned, or the rest of the producers will have to accept a smaller increase.
The UAE has ambitious plans for production growth, and has invested billions of dollars to boost production capacity, but the supply agreement leaves about 30% of its production capacity idle, according to sources familiar with Emirati thinking.
An OPEC + source said that the UAE says it is not the only one requesting a higher baseline, as other countries such as Azerbaijan, Kuwait, Kazakhstan and Nigeria have adjusted the level at which cuts are implemented since the start of the agreement last year.
During the prelude to the meeting this week, “OPEC +” sources said that Russia insists on pumping more oil into the market, as high prices encourage the growth of rival US shale crude production, which usually needs higher prices to be feasible.
Saudi Arabia, the largest producer in the "OPEC", is adopting a more cautious approach, and says that fewer barrels should be pumped given the continuing uncertainty about the path of the pandemic, with virus strains causing new outbreaks in several countries.
Last year, OPEC + agreed to reduce production by about 10 million barrels per day, starting in May 2020, with plans to end these restrictions in stages until the end of April 2022, and the current reduction is approximately 5.8 million barrels per day.
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