OPEC is delaying the decision to launch more oil on the market as prices rise

Saudi Arabia and Russia are working to reach an agreement to cautiously launch more barrels into the oil market, with prices rising to the highest level in nearly three years, but officials have disagreed on supply policy and delayed the decision. see you on Friday.

OPEC and its partners outside the cartel met virtually Thursday for preliminary meetings to discuss the gradual monthly increases in production of several hundred thousand barrels a day between August and December.

But they were unable to reach an agreement on production levels, postponing an official meeting of the so-called Opec + group until Friday afternoon. The UAE has emerged as an obstacle as it has raised concerns about its share of individual production.

People familiar with the talks said Opec and its allies were studying a proposal for an increase in production of 400,000 b / d each month, which is less than the 500,000 b / d initially proposed in recent weeks and months. They were also discussing extending the duration of the agreement by the end of 2022.

But the UAE has argued that the original supply-stopping agreement that was agreed at the height of the pandemic last year underestimated the country’s maximum production capacity.

“The UAE has increased its production capacity, so it is understandable that they are pushing for a higher production target in any revised agreement,” Amrita Sen told Energy Aspects, an energy consultancy that advises many members. of the Opec.

“It may seem like a relatively minor point, but we’ve already seen these debates come close to undoing the OPEC agreements.”

Traders and analysts were already skeptical that the volumes in question would be enough to stop a nearly 50% rise in oil prices since the beginning of the year, with demand rising sharply from the depths of the pandemic.

If no agreement is reached on higher levels of production, the current level of cuts could be maintained, which will likely stimulate prices as consumption recovers, which will harden the market.

Saudi Arabia is trying to increase production cautiously while trying to balance stronger demand with persistent uncertainties caused by the Covid-19 crisis and new variants of the virus.

People close to the kingdom said their strongest motivation was that they did not want prices to fall and would prefer them to be marginally higher, not only to provide the country with higher revenues from oil sales, but also because they believed that there was more investment was needed in the energy industry.

Russia, which has been pushing to maintain its market share, has been pushing for more aggressive increases for months.

“Maintaining price stability at high levels, while increasing production, could be in the best interest of Opec +,” Louise Dickson told Rystad Energy, a consultant.

Brent crude, the international benchmark for oil, extended its gains on Thursday, with a price that rose more than 2.4% to exceed $ 76 a barrel, near the highest level since 2018. Prices are they dropped to $ 75.61 later. West Texas Intermediate, the U.S. benchmark, hit $ 75 a barrel for the first time in nearly three years.

Investment in the sector has fallen sharply in recent years, and traders and analysts are increasingly warning this could cause prices to jump above $ 100 a barrel if supplies seem likely to fall short in the coming years; a price level that Saudi Arabia will fear would be detrimental to its interests because it would accelerate the move away from oil.

“Saudi Arabia believes that without greater investment in global oil production there is a danger that prices will ultimately outweigh,” said Christyan Malek, head of oil and gas at JPMorgan.

“By allowing oil prices to rise today, they prevent a rise in the price of oil in the future, caused by the current paralysis of investment.”

Although OPEC delegates predict higher oil consumption in the second half of 2021, they are concerned about the trajectory of the virus, said Angantan Oil Minister Diamantino Azevedo as the ministerial meeting went on. start Thursday.

OPEC expected a “sharp rise in oil demand in the second half of the year,” Azevedo said. But he admitted the virus was still happening “painfully” with “thousands of lives still lost every day”.

Concern about the new variants means that ministers are considering maintaining supply limits beyond April 2022, when the original agreement to reduce production, agreed at the height of the pandemic, was due to end. ‘last year.

The Opec + group agreed in April 2020 to reduce production by nearly $ 10 million a day, or about 10 percent of global demand, as widespread blockades and travel bans reduced oil consumption. . The group has already begun to gradually eliminate curbs, with current restrictions at just under 6 m / d.

“As shutdowns end in larger consumer countries, such as the U.S. and China, demand returns to more normal levels each quarter,” Ann-Louise Hittle told energy consultant Wood Mackenzie.