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OPEC and its allies failed to reach an agreement on rising oil production on Friday, as talks ended with a stalemate for a second day, while the United Arab Emirates opposed an agreement which does not resolve concerns about its own production goal.
As oil prices traded near the highest level in three years, at around $ 76 a barrel, the White House marked the impact of the ongoing rally on U.S. motorists as the world economy bounces back from initial pandemic success.
The Opec + group said it would meet again by videoconference on Monday at 3 p.m., Vienna time, with the possibility of the meeting being closely monitored given growing concerns about inflation in all markets.
“The next few days may demonstrate the amount of diplomatic capital the White House wants to extend to avoid three-digit oil prices,” Helima Croft told RBC Capital Markets, echoing warnings that crude will likely rise if the group cannot agree to add more production to the market.
Saudi Arabia and Russia had prudently proposed to increase production by 400,000 barrels each month between August and December, which other countries have widely supported. They also tried to extend a supply agreement between Opec + producers beyond next April, when it is expected to expire, until the second half of 2022.
But since Thursday, the UAE has opposed the extension of any agreement without re-evaluating its own production allocation, saying its quota set under the original supply reduction agreement, in full coronavirus crisis in April 2020, did not explain its maximum output capabilities.
UAE officials have privately considered losing production revenues by asking them to cut proportionately more than Saudi Arabia, exposing growing tensions between two traditional Gulf allies.
“The breakdown of the production line that should be used for supply cuts and the broader risk that the UAE could potentially leave Opec would have seemed unthinkable 72 hours ago,” Croft added. He said the UAE’s impetus for higher production came after an oil benchmark was launched earlier this year. “It simply came to our notice then [that was when] the dice were rolled, “Croft said.
While some of the world’s largest listed oil companies are retiring from fossil fuel companies, Sultan Al Jaber, head of the Abu Dhabi National Oil Company, has apologized for expanding UAE production capacity.
“We will not leave any opportunity free,” he told the Financial Times in an interview. “We continue exploration programs, identifying proven reserves, increasing production.”
As discussions between ministers dragged on until Friday, raising the prospect of a further escalation in oil prices, the White House said there was an “absolutely” concern about the impact on U.S. consumers in the UK. bomb.
Traders have questioned whether the proposed relatively modest production increases would be enough to prevent prices from continuing to rise and calm fears about inflation. But the absence of any increase in production, in case the talks do not reach a solution on Monday, would probably push them higher.
The Opec + group registered last year to record cuts of 10 million bars per day to offset the collapse in oil demand, as governments imposed blockades and travel bans to curb the spread of the coronavirus .
Since then, producers have slowly launched more barrels into the market, with cuts currently hovering below $ 6 million a day as they try to balance a rebound in oil demand with persistent virus-related uncertainties.
OPEC delegates are concerned about the extension of Covid-19 variants while keeping a close eye on the rise in production from Iran as talks with the US continue on the uprising of sanctions on their exports.
Some analysts believe that Saudi Arabia wants a slightly higher price both to increase revenue from government coffers and to encourage long-term investment in the industry, fearing that the market may face shortages in the coming years.
The kingdom does not want to see real shortages that could trigger a huge rise in prices, believing it would accelerate the shift to renewable energy at a time when it still depends heavily on oil revenues.
The latest division has also raised questions about the relationship between Saudi Arabia and the United Arab Emirates, which has long been among Opec’s most powerful alliances. It was undoubtedly weakened when Russia was introduced when the largest Opec + group was formed in 2016.
Last year, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman punished some members for producing above their target quota even though he was sitting next to his UAE counterpart, Suhail Al Mazrouei, knowing that his Gulf partner was one of the countries with high production.
Bill Farren-Price, a longtime Opec observer and Enverus analyst, said some of the tensions in the UAE’s relationship with Saudi Arabia probably went beyond differing views on the Opec + agreement. “While they remain closely tied, I don’t think they necessarily share the same strategic interests and may not want to be so tied,” Farren-Price said.
“I think there’s less interest in partnering with a group that controls oil production at a time when they strengthen ties to the west and when they see that their long-term oil policy is more about maximizing volume before of any peak demand. ”
Additional reports from Lauren Fedor
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