The OPEC oil cartel led by Saudi Arabia and other allied producing countries resumed talks on Monday amid a deadlock with the United Arab Emirates over how much to increase production levels, while demand continues to be hampered by threats from new variants of oil. the coronavirus.
The UAE on Sunday backfired on a plan by the OPEC+ group, which includes non-OPEC producers like Russia, to extend a pact to cut oil production beyond April 2022.
There are concerns that if an agreement cannot be reached between the 23 member states, the alliance could fall apart, leading to a price war and huge swings in global oil prices at a time of uncertainty over future oil demand due to ongoing lockdowns in parts of the world and the uneven distribution of vaccines worldwide.
Last year’s abrupt stop to travel and widespread lockdowns reduced global demand for oil, pushing energy prices down as unused barrels of oil quickly filled storage sites. The OPEC+ group agreed to a sharp cut of about 9 million barrels per day to prevent prices from collapsing further.
Saudi Arabia went further and voluntarily cut even more of its own production to prevent prices from falling. In June, the kingdom produced just under 9 million barrels per day, compared to more than 10 barrels per day before the pandemic.
As the economy started to recover and vaccine distribution picked up steam, the OPEC+ group increased production so that daily cuts averaged about 6 million barrels per day. Currently, the OPEC+ alliance produces about 37 million barrels per day, compared to about 43 million barrels per day in April last year, at the start of the pandemic.
Russian news agency TASS reported on Friday that all members of the OPEC+ Joint Ministerial Monitoring Committee — except the UAE — supported a proposal to increase production by 400,000 barrels per day from August and extend the deal until the end of 2022. increased to 2022.
Speaking to multiple media outlets over the weekend, UAE Energy Minister Suhail al-Mazrouei expressed his country’s concerns and regretted that a third of UAE’s production has gone unused for two years.
On Sunday, the UAE’s Ministry of Energy issued a rare statement that while the country is willing to extend the current OPEC+ agreement if it wishes, it wants a higher base production level that reflects the UAE’s actual production capacity rather than what it want. said is an obsolete reference.
The UAE currently produces about 2.7 million barrels per day under the OPEC+ agreement, although it averaged about 3 million barrels per day between January 2019 and March 2020, according to Refinitiv, a provider of financial market data. Analysts suggest the country could easily produce up to 4 million a day.
Saudi Energy Minister Prince Abdulaziz bin Salman told the Al-Arabiya channel late Sunday that “a little bit of rationality and a little bit of compromise” were needed. He added that in more than three decades of OPEC meetings, he “has never seen such a demand” and that he is neither optimistic nor pessimistic about the resumption of talks on Monday.
Per Magnus Nysveen, head of analysis at research and consulting firm Rystad Energy, said Saudi Arabia may need to make further cuts to its production to get what it wants.
“If the UAE had a higher quota in the future, only Saudi Arabia could cut production on their side,” he said, explaining that the kingdom has previously implemented voluntary austerity measures and could be willing to give in to maintain production. OPEC together.
Still, that could be a tough sell, as both countries need oil revenues to keep their economies rocked by the pandemic and lower oil prices afloat.
There are also political differences between the UAE and Saudi Arabia to consider.
Saudi Arabia and the UAE had been closely aligned in recent years, reflecting the burgeoning relationship that had developed between Abu Dhabi Crown Prince Mohammed bin Zayed and Saudi Crown Prince Mohammed bin Salman. The two de facto leaders were so close that the two countries started a war in Yemen together and cut ties with neighboring Qatar. In late 2017, the two countries announced a new partnership to coordinate in all military, political, economic, trade and cultural fields.
But in recent years national interests have diverged. The UAE has drastically reduced its footprint in the Saudi Arabia-led coalition fighting Iran-backed Houthis in Yemen. The Saudis quickly restored diplomatic relations with Qatar earlier this year, but the UAE has yet to restore full diplomatic relations and continues to block Qatar-based news sites such as Al Jazeera.
Meanwhile, Saudi Arabia on Sunday suspended all flights to and from the UAE, lumping it together with Ethiopia, Vietnam and Afghanistan as coronavirus risks. The kingdom has expressed concern about the rapidly spreading delta variant, which has appeared in the United Arab Emirates.
In recent days, the kingdom has changed its law on goods imported from the Arab Gulf states to exclude imported goods produced by Israeli companies from a preferential tariff agreement, as well as goods with components produced in Israel. Such products have expanded in the UAE following the normalization of ties with Israel.
In February, Saudi Arabia warned companies that if their regional offices are not moved to the kingdom by 2024, their contracts with the Saudi government and its institutions would be suspended. The decision is seen as a direct appeal to companies with regional offices in Dubai, the UAE’s Western-friendly financial hub, to pick up and relocate to Riyadh.