The United Arab Emirates and Saudi Arabia are approaching the oil production contract

The UAE and Saudi Arabia have reached the draft of an agreement that would unblock an agreement between Opec and its allies to increase oil production, four group delegates and advisers said on Wednesday, but the warned conversations continue and the deal remains to be finalized.

Saudi Arabia has agreed in principle to review the UAE’s “base” level of production, people who were familiar with the talks said, after the Gulf state effectively has blocked an Opec + agreement last week because he didn’t address concerns about his own production goal.

They said an agreement appeared to be near, but final details on the exact level of the baseline (which is the basis for calculating a member country’s production target) were still under discussion.

Any agreement between Saudi Arabia and the United Arab Emirates they will still have to sign other members of the Opec + alliance, which includes Russia, at a meeting that has not yet been arranged. The UAE Ministry of Energy confirmed that “deliberations and consultations between stakeholders are ongoing.”

OPEC aimed to increase production by 400,000 barrels per day each month by the end of the year. This timetable is likely to be restored if the UAE-Saudi Arabia agreement comes to fruition and other members revisit the UAE’s base target.

The UAE has increased its production capacity in recent years, from about 3.5mb / d in 2018 to 4m b / d today, meaning it believes it is entitled to a higher baseline and, therefore, a production goal. By 2030 it should be closer to 5 mb / d.

This month’s OPEC meetings came to a standstill due to the dispute between the United Arab Emirates and Saudi Arabia, which fueled the volatility of crude oil markets amid concerns that the shoulder would prevent the planned increase in supply and undermined the cooperation of the cartel.

The group, which cut production by nearly $ 10 million a day at the height of demand reduction blockages last year, has been slowly increasing production as demand has recovered, but at a pace many oil traders and analysts believe is too slow to stop the market. to tighten quickly.

Tuesday, the He warned the International Energy Agency that if Opec did not move quickly to lift supply, rising oil prices could begin to drag the economic recovery from the pandemic.

Oil prices reach the highest level since 2018 last week, rising above $ 77 a barrel. On Wednesday, Brent crude fell 0.5% to $ 76.14 a barrel.

Formal confirmation of the agreement between the two countries can wait for another OPEC meeting, he suggested to people familiar with the talks, who warned that relations between the two Gulf allies remained strained.

“They may not be officially confirmed,” an adviser from the Gulf countries familiar with the negotiations said, referring to Saudi Arabia. “I don’t think they want to give such a big boost to the UAE.”

Reuters reported on Wednesday that the deal was over, with the UAE setting a new initial target of 3.65mb / d.

Two of the four delegates and advisers told the Financial Times that they expected the agreed final baseline to be lower, possibly around 3.5mb / d. The Gulf adviser said the new baseline would be applied from April 2022.

Saudi Arabia wants to extend the Opec + agreement at least by the end of 2022, believing that the oil market needs greater security given the Covid-19 crisis and the emergence of coronavirus variants such as Delta.

One person said that Saudi Arabia might not want to confirm any preliminary agreement, preferring that it be raised only when Opec + is ready to meet and sign the broader agreement.

Riyadh wants to minimize the depth of division with the UAE on the issue, given its long-standing alliance.

Ayham Kamel, of the Eurasia group, said that while Saudi Arabia has significant leverage within Opec + to reach any agreement, there is still a risk that other countries may oppose it if they also want it to be reviewed. its baselines.

“The UAE problem could very well open up the Pandora’s box and require a broader reconsideration of the benchmark problem for member states,” Kamel said. “The risks to a potential deal have not evaporated.”