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The 23 oil-exporting countries of the “OPEC Plus” alliance will meet again on Monday to find a solution, after the failure on Friday to reach an agreement on the fixing of production quotas, from the month of August.
Talks between OPEC countries and their non-cartel allies will resume, a day after the UAE rejected a plan being negotiated as “unfair” in an escalation of the dispute that could hamper the resumption of the United Arab Emirates. crude oil market after the Covid-19 pandemic.
The proposed plan calls for an increase in oil production of 400,000 barrels per day each August to December, so that the additional amount of oil brought to market by the end of the year will reach two million. barrels per day.
This is in line with the general strategy followed by “OPEC Plus” since May, which is to gradually increase production after having sharply reduced it with the massive drop in demand when the Corona virus started to spread.
To some extent, this strategy has been successful, as oil prices rebounded to around $ 75 per barrel for the two benchmark crudes, Brent North Sea and West Texas Intermediate, a 50% increase since the beginning of the year, a level similar to that the prices were in October 2018.
Although countries seemed to agree with this proposal, it was the issue of extension that sparked controversy.
“unfair” plan
The OPEC Plus alliance committed in April 2020, when crude prices fell sharply on the impact of the first wave of the epidemic, to withdraw 9.7 million barrels per day from the market, to be gradually pumped during the period until the end of April 2022..
However, this period now seems very short given the current rate of increase in production, as the coalition countries continue to deduct 5.8 million barrels per day from their production.
This prompted the proposal to extend the currently enforced deal until December 2022, an option which faces opposition from Abu Dhabi.
While Saudi Arabia and Russia support extending the deal until December 2022, the UAE is keen to discuss increased production levels before agreeing to an extension beyond April.
UAE Energy and Infrastructure Minister Suhail Al Mazrouei said on Sunday that “the UAE’s demand is only fair in the new post-April deal.”
The Energy Ministry announced that “the UAE is not opposed to extending the deal if necessary, but has called for a review of the basis point ratios for the reduction benchmark to ensure fair quotas for all members during the extension “.
The UAE is insisting on increasing the base production line from 0.6 million barrels per day to 3.8 million barrels, as the current ratio set in October 2018 does not reflect its full production capacity.
difficult equation
It was this disagreement that thwarted the first round of meetings last Thursday, and then Friday’s meeting between members of a group that usually attends disagreements between Saudi Arabia and Russia.
“The possibility of no deal or even the exit of the United Arab Emirates from OPEC has increased dramatically,” said Halima Croft, analyst at RBC, in a note, as it seems difficult for the coalition to ‘accept the UAE’s request without opening the door to chaos.
“What was supposed to be a relatively quiet OPEC Plus meeting has turned into a very long and uncertain meeting,” Kepler analysts said. OPEC Plus is also faced with a difficult equation, between a real but fragile recovery in demand, the expected return of Iranian exports, and the current high prices which displease some large consumers like India.
However, the alliance is used to differences and was able to overcome a major dispute between Moscow and Riyadh early last year, which sparked a short but intense price war.
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