Sat, Jul 03, 2021 page10

• Oil deal in tatters after the UAE rebels

  ‘PANDORA’S BOX’: Russia and Saudi Arabia rejected Abu Dhabi’s request to allow it to adjust the baseline for its cuts to oil production, effectively raising its quota

  • Bloomberg
  • • 
    • 
    • 

  The OPEC+ alliance on Thursday descended into bitter infighting after a key member blocked a deal at the last minute, forcing the group to postpone its meeting and casting doubt on an agreement that could ease a surge in oil prices.

  The standoff between the United Arab Emirates (UAE) and the rest of the cartel could ultimately mean that OPEC+ will not increase production at all, a delegate said.

  Without a deal it would fall back on existing terms that call for output to remain unchanged until April next year.

  That would squeeze an already tight market, risking an inflationary price spike.

  The dramatic turn of events leaves the market in limbo — just as inflationary pressures are fixating investors with oil above US$75.

  It also tarnishes the cartel’s carefully reconstructed reputation, raising the specter of the destructive Saudi Arabian-Russia price war of last year.

  Earlier on Thursday, the OPEC and its allies appeared to have an agreement in principle to boost output by 400,000 barrels a day each month from next month to December.

  It would also have extended the duration of the broader OPEC+ accord, setting the final expiry of the cuts in December next year instead of April next year.

  That preliminary agreement was upended by the UAE, which said it will block the deal until the baseline for its own cuts is adjusted, effectively raising its production quota, delegates said.

  Oil prices jumped in response.

  “Any request to adjust the production quota would be like opening Pandora’s box,” UBS Group AG commodity analyst Giovanni Staunovo said.

  That could add up to a production increase of about 700,000 barrels a day for the UAE alone, and “other OPEC+ states might also request an adjustment,” Staunovo said.

  It is not the first time that the UAE’s ambitions have upset negotiations. Late last year, Abu Dhabi even floated the idea of leaving the cartel as it pressed to raise production.

  An OPEC meeting was postponed then, too, amid fraught negotiations, although a deal was ultimately struck.

  The UAE has invested heavily in oil capacity and wants to use it.

  The UAE’s cuts are measured from a starting point in 2018, setting its maximum capacity at about 3.2 million barrels a day. Expansion projects have since raised that number and the country wants its baseline reset to about 3.8 million barrels a day, delegates said.

  The UAE argues that the change is necessary, because under the current terms of the OPEC+ deal, it is making proportionally deeper cuts than other members.

  Russia and Saudi Arabia, the leaders of the group, rejected the UAE’s request, delegates said.

  Talks were to resume yesterday, allowing time for consultations at higher levels of government, delegates said.

  “It’s hard to see either side backing down enough to get a clean outcome tomorrow [yesterday],” said Richard Bronze, head of geopolitics at consultant Energy Aspects Ltd. “Talks may even extend through the weekend, as any compromise will likely involve complicated OPEC maths.”

  Oil has risen about 50 percent this year, with the recovery in demand from the COVID-19 pandemic outpacing the revival of OPEC+ supplies after last year’s deep cuts.

  OPEC+ is already in the process of reviving crude supplies halted last year in the initial stages of the pandemic.

  The 23-nation coalition added about 2 million barrels a day to the market from May to this month, and the question before ministers this week is whether to keep going in the next few months.
• Most Popular

  • 1

    Homeless Sudan club defy odds in CAF Champions

  • 2

    Trump announces 32% tariffs on Taiwan

  • 3

    Michkov key as Flyers beat Predators

  • 4

    Third-tier Bielefeld stun Leverkusen to reach final

  • 5

    China launches military drills around Taiwan