OPEC+ will resume talks on increasing oil production on Friday after the United Arab Emirates blocked an agreement the day before, leading to a standoff that could delay plans for OPEC+.
to pump more crude through the end of the year to cool prices that have risen to a two-and-a-half year high.
In the absence of an agreement, the OPEC + alliance may maintain tighter production restrictions while oil prices are currently trading at about $ 75 a barrel, up more than 40 percent since the beginning of the year, while consumers want more crude to support the global recovery from the Covid-19 pandemic. .
Increased oil prices contribute to global inflation, slowing the economic recovery from the pandemic.
The UAE has halted an agreement backed by top producers Saudi Arabia and Russia to raise production by 2 million barrels per day by the end of 2021 and extend the remaining restrictions until the end of 2022 rather than ending them in April.
Talks between the Organization of the Petroleum Exporting Countries (OPEC), Russia and other producers, the alliance known as OPEC+, resumed at 1500 GMT. Ministers of the major countries met first in the framework of the Joint Ministerial Monitoring Committee, which was followed by a full ministerial meeting.
To face the severe damage to oil demand due to the Covid-19 crisis, OPEC + agreed last year to reduce production by nearly ten million barrels per day from May 2020, with plans to end these restrictions in stages until the end of April 2022. The current reduction is 5.8 Almost one million barrels per day.
And if the UAE blocks any agreement, those remaining cuts will likely remain in effect.
There is also a small possibility of the agreement collapsing and all countries may pump as much crude as they want.
OPEC + sources said that the UAE does not oppose the principle of increasing the group’s production, but it wants its production to increase. It says its baseline, the level of production at which cuts are calculated, was already too low and something it was prepared to lose sight of if the deal expired in April.
OPEC + sources said 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, this 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.
Neil Quilliam, a research fellow at Chatham House, said Abu Dhabi’s position indicates that “as its frustration grows, it will begin to act more on the basis of the national interest rather than the collective interest of OPEC, and we will see more independent-track actions based on the UAE’s view of its place in the world After the looming hydrocarbon.
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.
In preparation for the meeting this week, OPEC + sources said that Russia insists on pumping more oil into the market, as higher prices encourage the growth of rival US shale crude production, which usually needs higher prices to be feasible.
Saudi Arabia, the largest producer in OPEC, is adopting a more cautious approach and says that fewer barrels should be pumped given the continuing uncertainty about the course of the pandemic, with virus strains causing new outbreaks in several countries.