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Oil prices jumped to highest level in three years after OPEC and its allies abandoned a decision on rising oil production as Saudi Arabia, Russia and the United Arab Emirates fought to reach a compromise.
Opec + oil ministers were due to meet Monday failing to reach an agreement late last week, with the UAE scrambling for a supply target it believes is too low and underestimating its production capacity.
But with high-level bilateral talks failing to break the deadlock and find the necessary unanimity of views before the scheduled start of the formal meeting, the virtual meeting was canceled.
The meeting has been “canceled”, said Mohammed Barkindo, OPEC secretary general before the ministers. “The date of the next meeting will be decided in due course.”
A person familiar with Saudi Arabian politics said the UAE’s stance put an agreement out of reach and that prices will now rise as a result.
“We missed a good opportunity to help the market alleviate the temporary shortage,” he said. “They [UAE] now we need to take the heat from higher oil prices. ”
Brent crude, the international benchmark, rose in the news to $ 77.09 a barrel, gaining 1% to reach the highest level since 2018. US benchmark West Texas Intermediate rose to 76.20 dollars a barrel.
“The postponement of the Opec + meeting brings the market closer to a month of August with no additional barrels of the alliance, which is why oil prices immediately jumped to the news,” Louise Dickson told the consultancy Rystad Energy.
Riyadh and Moscow have pushed for a proposal to increase production by 400,000 barrels per day each month from August to December and expand the Opec + supply agreement, agreed last year, beyond the expected completion date for to April 2022.
While the UAE claimed to support increased production, they have demanded that their base production (from which supply cuts are calculated) take into account their production capacities more. and be reviewed before agreeing to extend the agreement.
People familiar with the UAE’s position said Saudi Arabia and Russia needed more time to discuss Abu Dhabi’s position, which remains unchanged.
“There is no postponement,” said a person familiar with the Saudi and Russian position. “The United Arab Emirates blocked the decision, so the meeting was canceled. Current production levels continue as they are. “
Oil prices have risen 50% since the beginning of this year, as demand has bounced back from the depths of the pandemic, with vaccination programs allowing rich countries to begin reopening.
Opec + reduced oil production by almost 10 million barrels a day last year, almost 10% of pre-pandemic demand, as consumption fell, and has only been adding supplies to the market the last few months. The current cuts are just under 6 mb / d.
Analysts said the solution to the UAE’s complaint about its baseline is complicated by the fact that it would likely involve having to review other country targets, which may leave some of the largest producers, including Russia, with a lower quota.
The confrontation has been exposed increasing tensions between Saudi Arabia and the United Arab Emirates, traditionally close allies of both Gulf policy and OPEC. The United Arab Emirates has invested heavily in increasing its oil production capacity in recent years.
Some analysts warn that tensions in the Opec + group could ultimately lead to a much larger supply if the underlying agreements are undone, leaving producers without production restrictions.
Last year, Saudi Arabia drastically increased production at the start of the pandemic after Russia refused to initially join the supply cut, exacerbating price collapses as blockades and travel restrictions were beginning to curb demand.
The deal to cut production last April was partially brokered by then-US President Donald Trump, who called for a halt to the price war that was attacking the U.S. shale oil industry. Units.
Last week, the Biden administration said it was concerned about the extent of rising oil prices in recent months, a move analysts saw as a signal to Gulf allies, including Saudi Arabia and the United Arab Emirates, which would like the production to cool the concentration.
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