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OPEC and its allies have reached one agreement increase oil production at a time of high prices, after committing to how the production targets of some of its largest members are calculated.
Members of the Opec + group, including the United Arab Emirates, Saudi Arabia, Russia, Iraq and Kuwait, will get a higher production baseline, the level from which production operations are calculated, in a victory for Abu Dhabi which had threatened an agreement earlier this month. .
The result of the delayed the meeting should mean higher oil production from members in the coming months as oil prices have risen to their highest level in three years, threatening to drag the economic recovery during the recovery of the Covid-19 pandemic .
Initially, Opec + will pump 400,000 barrels per day each month from August, increasing production by around 2 million barrels per day in total by the end of the year. These monthly production increases will continue next year, with Opec + saying it has extended the deal until December 2022 from April 2022.
“The meeting noted the continued strengthening of market fundamentals, with oil demand showing clear signs of improvement,” Opec + said in a statement.
Under the agreement, the UAE production baseline, which it has complained does not reflect its growing production capacity, will rise to 3.5 mb / d from the current 3.2 mb / d, according to people familiar with the conversations.
Saudi Arabia and Russia will see theirs baselines increase to 11.5mb / d (from 11m b / d today), while Iraq and Kuwait had their baselines elevated by 150,000 b / d to 4.8mb / d and Kuwait’s 3m b / d respectively .
The oil producer group cut production by nearly $ 10 million a day to match demand reduction blockages and travel bans in April 2020, but has been slowly adding production as economies reopen.
About 5.8 mb / d of production remains off the market, but this level is expected to return largely by the end of 2022.
Brent crude, the international benchmark for oil, has risen to a three-year high above $ 75 a barrel as demand has recovered, and traders warn that the market is narrowing rapidly.
Questions remain as to whether the amount of volume restored by Opec + will be enough to significantly lower prices in the coming months, as demand is expected to continue to rise.
UAE complaints about baselines had thwarted an agreement earlier this month and revealed a fault line between Abu Dhabi and Riyadh, with Saudi Arabia traditionally the most powerful member of the core of the Opec group.
This week’s talks with Saudi Arabia established the bases by commitment.
The decision to increase the production baselines of other large members seems calculated to avoid a split in the wider group, although it is unlikely to lead to higher production targets until next year, when the original agreement expires in April 2022. The existing baseline will remain in place until then, Opec + said.
The next Opec + meeting will be held on September 1.
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