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(Bloomberg) –
OPEC and its allies have agreed to gradually increase the oil supply to the market, ending a two-week feud between Saudi Arabia and the United Arab Emirates.
The unusually public dispute that tested the unity of the cartel was resolved in a classic compromise – Riyadh meeting Abu Dhabi halfway through its demand for a more generous production limit.
“Consensus building is an art,” Saudi Energy Minister Prince Abdulaziz bin Salman told reporters after the meeting. The agreement is proof of the strong ties between members and shows that “OPEC + is here to stay”.
The deal means the cartel will increase production by 400,000 barrels per day each month from August, until all of its halted production has been restored. The deal will also give the UAE and several other countries higher baselines against which their production cuts are measured, starting in May 2022, according to a statement from the group.
The UAE’s level has been raised to 3.5 million barrels per day, below the 3.8 million initially requested but above the previous benchmark of 3.17 million.
Supply compression
The truce between the two longtime allies will ease an impending supply contraction and reduce the risk of an inflationary surge in oil prices. It also ends a diplomatic row that has pissed off traders, as the struggle between the two long-standing allies risked undoing the broader agreement between the Organization of the Petroleum Exporting Countries and its allies that supported the resumption of trade. crude price.
The multifaceted agreement means several things for the oil market. This gives consumers a clearer view of how quickly OPEC + will restore the 5.8 million barrels per day of production it still holds back, since it made drastic cuts last year in markets. early stages of the pandemic.
The base adjustments will not change the pace of the 400,000 barrels per day increase in monthly production when they take effect next year, Prince Abdulaziz said. The group will continue to meet monthly, including a market review in December, and could adjust the schedule if necessary, he said.
“The monthly meetings and the December review tell you this is all amendable,” said Bill Farren-Price, director of research firm Enverus. “So oil bulls should read this as positive – OPEC + supply management continues. “
Internal tensions
The deal also resolves long-standing grievances that have caused tension within OPEC + since the end of 2020. The UAE blocked a deal earlier this month, arguing that the way its quota was calculated was unfair as it did not reflect a costly expansion of the country’s industry.
The feud was particularly bitter and tensions transcended oil diplomacy amid growing economic rivalry between Abu Dhabi and Riyadh. Ministers in each country used media interviews to make their case, recalling the 2020 Saudi-Russian price war, as well as past threats by the UAE to quit the cartel.
With a successful deal in the bag, the two countries underscored the strength and friendliness of their relationship.
“The UAE is attached to this group and will always work with it,” Energy Minister Suhail Al-Mazrouei told reporters after the meeting. He thanked Saudi Arabia and Russia for keeping OPEC + together and for fostering a constructive dialogue which resulted in an agreement.
(Updates with the Saudi Minister of Energy’s commentary in the third paragraph.)
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