Tue, Jul 06, 2021 page10

• OPEC+ impasse worsens amid rare Saudi-UAE spat

  THREAT TO ALLIANCE: Discussions have stumbled over a proposal to extend output increases until the end of next year, and failure to reach a deal could start a price war

  • AFP, RIYADH
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  Saudi Arabia is engaged in a rare public spat with its Emirati allies over a critical oil output deal, escalating tensions ahead of another meeting of the OPEC+ alliance yesterday.

  The United Arab Emirates (UAE) has bitterly opposed a proposed deal by the alliance of oil producing countries to raise production, causing a stalemate that could derail efforts to curb rising crude prices amid a fragile post-COVID-19 recovery.

  “It’s the whole group versus one country, which is sad to me, but this is the reality,” Saudi Arabian Minister of Energy Prince Abdulaziz bin Salman told Bloomberg television, suggesting that the UAE were isolated within the 23-member OPEC+ bloc.

  In a separate interview with al-Arabiya television aired late on Sunday, he called for “a bit of rationality and a bit of compromise” ahead of yesterday’s meeting.

  Since May, the group has raised oil output little by little, after slashing it more than a year ago when the COVID-19 pandemic crushed demand.

  The current proposal is to ratchet up output by 400,000 barrels per day each month from next month to December, pumping an additional 2 million barrels per day of crude into the market by the end of the year.

  However, talks have floundered over a proposal to extend those measures until the end of next year.

  The UAE, which only supports a short-term increase, on Sunday demanded better terms for a deal extension into next year.

  “The UAE demands to have justice in the new agreement ... and it is our sovereign right to demand reciprocity with the rest of the countries,” Emirati Minister of Energy Suhail Mohamed al-Mazrouei said in a Sky News Arabia television interview.

  “It is unreasonable to accept further injustice and sacrifice — we have been patient,” he said.

  At the heart of Riyadh’s dispute with Abu Dhabi is the issue of “baseline” production levels, against which OPEC+ members determine cuts or increases.

  Al-Mazrouei said his country’s baseline, 3.17 million barrels per day, was too low and should be set at 3.8 million if the deal is extended.

  That was rejected by Prince Abdulaziz.

  “I’ve been attending OPEC+ meetings for 34 years and have never seen such a demand,” he told al-Arabiya.

  Their comments were unusually frank in a region where disputes are typically handled discreetly behind palace walls.

  Prince Abdulaziz has refused to give in to Abu Dhabi, saying extending the deal until the end of next year is necessary for a stable energy market.

  “We have to extend,” Prince Abdulaziz told Bloomberg. “The extension puts lots [of] people in their comfort zone.”

  A failure to reach a deal could drive crude prices sharply higher, threatening an already tenuous global recovery from the pandemic.

  It also threatens to break up the OPEC+ alliance, which could trigger a price war that would create global economic havoc.

  Last year, a similar disagreement over oil quotas between Saudi Arabia and Russia led to an aggressive price war that exacerbated the price collapse triggered by the pandemic, but the UAE has stood firm, stalling OPEC+ talks last week.

  “There is clearly a rush to make the most of this next and perhaps last oil boom,” Karen Young, founding director of the Middle East Institute’s Program on Economics, told S&P Global Platts.

  “I think for the Gulf producers, the competition now becomes more of a customer relationship game,” Young said.

  Oil traders were watching anxiously as the group was set to reconvene yesterday at the cartel’s Vienna headquarters.

  “The prospect of a no-deal outcome — as well as a UAE OPEC exit — has risen materially,” RBC Capital Markets analyst Helima Croft said.

  “The White House may need to work the phones over the weekend to help bridge the gap and prevent a breakdown scenario ... that could send prices spiraling higher,” Croft said.

  The alliance has to navigate a complex market that has seen an uptick in demand which might yet turn out to be fragile, as well as a possible return of more Iranian exports in the medium term.

  However, rising prices have also prompted grumbles. Brent crude climbed above US$76 a barrel last week, irking the US, as well as large crude consumers such as India as they seek to relaunch their economies.

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