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Major oil producers struck a deal on Sunday to increase production, as the United Arab Emirates and Saudi Arabia resolved a dispute that stalled a deal this month.
The pact paves the way for OPEC Plus, as the group is known, to start pumping more oil from next month, a move that could help ease a possible supply squeeze as global economies continue to shrink. prepare after pandemic lockdowns.
Under the agreement, OPEC Plus will increase production each month by 400,000 barrels per day, starting in August.
The arrangement gives the Emirates most of the increase in its production quota it wanted, but not until next April. Other countries, including Kuwait, Iraq, Saudi Arabia and Russia, will also benefit from an increase in the baselines from which their production limits are calculated, according to the OPEC statement.
The 23-member group also bowed to a Saudi demand to extend the global production deal until the end of 2022.
The deal ends a standoff between Saudi Arabia, the de facto cartel leader, and the Emirates, which have invested heavily in expanding their oil production and have come up against the group’s production limits.
The dispute, which delayed plans to increase overall production levels, pushed oil prices up earlier this month, briefly reaching six-year highs on July 6, and underscored concerns about rising prices. gas and inflation in general in the United States and elsewhere.
The pact also seems to give Saudi Arabia, the world’s largest oil producer, the dominant influence over the group.
“We are here to stay,” Saudi oil minister Prince Abdulaziz bin Salman said at a press conference after the meeting. “What binds us together is far beyond what you imagine.”
What matters in this deal is not the production figures – which can be changed through monthly reviews – but the fact that the organization was able to reach consensus under difficult circumstances, said Bhushan Bahree, executive director. from IHS Markit, a research firm.
“The important thing is that they faced a problem and overcame it,” Bahree said.
Further testing, however, is likely to occur as subsequent meetings provide opportunities for negotiation. The dispute with the Emirates could be a harbinger of changes that could create rifts between the various members of the group, which includes OPEC as well as Russia and its allies. .
The environment in which OPEC has operated for a long time is changing. The organization’s calculation was that seeking higher prices while limiting production was a smart strategy as there would always be a demand for the vast resources its members still have in the ground.
Climate change has turned this long-term perspective upside down. The deadly floods in Europe this week are just the latest weather catastrophe prompting lawmakers to demand tougher rules on greenhouse gas emissions. Some countries, which depend on fossil fuels as their main source of government revenue, may seek to turn their reserves into cash while they still can.
“This latest collapse of OPEC highlights important changes in oil marketing strategy that are starting to spread across the world oil zone,” said Jim Krane, a researcher at the Baker Institute at Rice University.
The United Arab Emirates, whose oil production is dominated by the Emirate of Abu Dhabi, has for some time been moving in a direction that could lead to divergences with the rest of OPEC.
Abu Dhabi is investing heavily in its national oil company, the Abu Dhabi National Oil Company, attracting international companies to explore and develop new resources and strengthen activities such as refining and trading in petroleum products.
Abu Dhabi rulers increasingly viewed the country’s quota of around 2.7 million barrels per day as both unfair and contrary to the national interest. The production capacity of the national oil company has already reached around 4 million barrels per day and is heading towards 5 million barrels per day.
Like other OPEC members, the leadership of the UAE is also unhappy with the change in OPEC dynamics since 2016, when Saudi Arabia made Russia one of the key associates in this process. which has now become OPEC Plus. As happened earlier this month, significant moves are often negotiated between Riyadh and Moscow, leaving other members with no choice but to join us. This arrangement has grated some members, including the Emirates, a neighbor and traditionally a close ally of the Saudis.
In early July, UAE oil officials made their dissatisfaction clear at a series of OPEC Plus meetings. Suhail al Mazrouei, the UAE’s petroleum minister, insisted that the country’s quota should be calculated from a higher baseline than that set in April 2020, in an emergency deal in start of the pandemic.
The Saudis hesitated, saying a new quota for one member would lead others to demand changes.
Obviously, both countries realized that at this point they had better come to a compromise. Despite the focus on Russia, Saudi Arabia did not want to risk losing the presence of a big producer like the UAE in the organization.
The world of oil, however, is changing. Al Mazrouei told the press conference that although his country is happy with his new deal, he noted that it will continue until the end of next year – not indefinitely.
“Beyond that, I think we’ll all be talking about it as a country,” he said.
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