OPEC+ Cancels Policy Meeting after Saudi-UAE Stand-Off
The impasse between Saudi Arabia kingdom and the United Arab Emirates has resulted in the abandonment of oil policy talk by the Organisation of Petroleum Exporting Countries and allies (OPEC+) on Monday.
The 18th OPEC and its counterpart non-OPEC Ministerial meeting was adjourned on Thursday over a disagreement between the Emirates and Saudi with an initial expectation that talks will resume on Monday, 5 July 2021, via videoconference.
OPEC+ ministers called off oil output talks on Monday after clashing last week when the United Arab Emirates hesitated with the plan to extend output curbs for eight months.
The oil exporting countries group had agreed on record output cuts in 2020 to cope with a COVID-induced price crash. The producers have been gradually easing the output restrictions. A plan on Friday to lift output by about 2 million barrels per day (bpd) from August to December 2021 and to extend the pact on a series of gradual output shifts to the end of 2022 was blocked by the UAE.
The stalemate has ramifications for the global economy since there are fears that rising commodities prices could raise inflation and hinder the pandemic’s recovery. Consistently increased prices might compel central banks to tighten monetary policy by hiking interest rates swiftly, boosting borrowing costs for businesses that have acquired massive debt heaps since the start of COVID.
The UAE is seeking better terms and has so far declined to join an agreement that would raise monthly output by 400k barrels per day from August to December. Goldman Sachs stated that OPEC+ will most likely accept the deal without an extension.
Despite the disagreements, the UAE has stated that it would not abandon the OPEC+ agreement before it expires in April. The continuation of the meeting today has been cancelled, as Twitter sources reported that Iran’s retiring energy minister left before the meeting started.
However, Saudi energy minister Prince Abdulaziz bin Salman on Sunday called for “compromise and rationality” to secure a deal after two days of failed discussions last week.
Reuters reported that on Monday, four OPEC+ sources said there had been no progress and talks were called off, without a new date being set.
The failure to agree on Monday means an expected increase in oil output from August will not take place, the sources said, helping to drive up international benchmark Brent crude, which was trading around 1% higher at close to $77 a barrel.
Oil prices are at the highest since 2018 and have already prompted concerns inflation could derail a global recovery from the pandemic. OPEC+ agreed to record output cuts of almost 10 million barrels per day (bpd) last year, about 10% of world output, as the pandemic hit. They have been gradually relaxed and stand at about 5.8 million bpd.
The UAE, sources said, on Friday accepted a proposal from Saudi Arabia and other OPEC+ members to raise output in stages by about 2 million bpd from August to December but rejected extending remaining cuts to the end of 2022 from a current end date of April.
The UAE is upset about the baseline from which its production cuts are being calculated and wants it raised. Abu Dhabi has invested billions of dollars to increase its production capacity and says its baseline was set too low when OPEC+ originally forged their pact.
On Monday, OPEC+ sources said the UAE’s position was unchanged. They said a ministerial panel chaired by Saudi Arabia and Russia, the Joint Ministerial Monitoring Committee, needed more time to discuss the issue.
The UAE has said it was not alone in seeking a higher baseline as others, including Azerbaijan, Kazakhstan, Kuwait and Nigeria, had requested and received new ones since the deal was first agreed last year.
Decisions in OPEC+, which groups the Organization of the Petroleum Exporting Countries with Russia and other big producers, must be unanimous.
Potential outcomes, OPEC+ sources said, include raising output from August, or raising output from August and extending the remaining cuts with a new higher baseline figure for the UAE. OPEC+ could also go ahead with the deal as is until April 2022 and discuss a new UAE baseline as part of a new deal, the sources said. The dispute reflects a growing divergence between Saudi Arabia and the UAE.
The two nations had built a regional alliance, combining financial and military muscle to fight a conflict in Yemen and project power elsewhere. But the UAE has withdrawn from action in Yemen, while Saudi Arabia has sought to challenge the UAE’s dominance as the region’s business and tourism hub.
The UAE in August 2020 also agreed to normalise relations with Israel, while Saudi Arabia has no official diplomatic relations with Israel.
OPEC delay, steep backwardation weigh on West Africa Crude demand
Differentials were under pressure on Monday as a steep backwardation in the futures curve weighed on Asian demand and a cancellation of an OPEC+ meeting added to supply uncertainties.
Angola’s state oil firm Sonangol lowered its offer level for a spot cargo of Girassol again to date Brent plus $1.20 a barrel from plus $1.35 last week. Meanwhile, India’s International Oil Company issued a buy tender for West African crude closing on Thursday for cargoes loading Aug. 22-31.
