The deadlock may postpone plans to increase oil supply to cool oil prices until the end of the year.
As the United Arab Emirates blocked certain aspects of the agreement, OPEC+ will resume negotiations on Monday after failing to reach an agreement on oil production policy for the second day in a row on Friday.
The deadlock may postpone plans to increase oil supply until the end of the year to cool oil prices that have soared to a two-and-a-half-year high.
If no agreement is reached, the OPEC+ alliance may restrict production more strictly. The current oil price is around US$75 per barrel, which has risen by more than 40% this year. Consumers want more crude oil to help the world recover from the COVID-19 pandemic.
Rising oil prices are fueling global inflation and slowing the economic recovery from the coronavirus crisis.
OPEC+, composed of the Organization of Petroleum Exporting Countries, Russia and its allies, voted on Friday to increase production by about 2 million barrels per day from August to December 2021 and extend the remaining production cuts to the end of 2022, instead of OPEC+ According to sources, the deadline is April 2022.
The UAE agreed to release more oil to the market, but refused to support an extension of the production cut period.
OPEC+ said in a statement that negotiations will resume on Monday.
In response to the destruction of oil demand caused by the COVID crisis, OPEC+ agreed last year to reduce production by nearly 10 million barrels per day starting in May 2020, and plans to phase out the reduction by the end of April 2022. The current production cut is about 5.8 million barrels per day.
If the UAE prevents an agreement from being reached, the remaining reductions may remain the same, although the probability of the agreement breaking down is very small, and all countries can pump water as they wish.
Alternatively, the organization could agree to increase production until the end of 2021, but postpone discussions about extending the agreement beyond April 2022. OPEC + sources said that the UAE has already made this proposal.
OPEC+ sources said that the UAE complained that its benchmark (calculating the level of any reduction) was initially set too low-this is a question it raised before, if the transaction ends in April 2022, but if the transaction lasts longer, Be prepared to tolerate.
OPEC+ sources said that the UAE hopes to set its benchmark output at 3.84 million barrels per day, compared to 3.168 million barrels per day.
The UAE has ambitious production plans, investing billions of dollars to increase production capacity. According to people familiar with the matter, the OPEC+ agreement has left about 30% of the UAE’s capacity idle.
The UAE argues that it is not only the UAE that requires a higher baseline, because since the first agreement was reached last year, other countries such as Azerbaijan, Kuwait, Kazakhstan and Nigeria have requested and received new baselines.
In the preparations for this week’s meeting, OPEC+ sources have stated that Russia insists on releasing more oil to the market because rising prices are encouraging the growth of rival US shale oil production-which often requires higher prices to be economical.
OPEC leader Saudi Arabia has adopted a more cautious approach, saying that oil production should be reduced because the mutation of the coronavirus has led to a new outbreak, and the course of the pandemic remains uncertain.