Opec+ deal to hike Output
Opec and its Russialed oil-producing allies reached a deal on Sunday to raise the production limits imposed on five countries, including the UAE, by phasing out 5.8 million barrels per day of oil production cuts by September 2022.
The deal, marking the end of a gridlock, will help cool prices which have climbed to 2-1/2 year highs as the global economy recovers from the coronavirus pandemic.
The oil producers group agreed to continue to boost output from August by 400,000 barrels per day (bpd) each month to help fuel a global economic recovery as the pandemic eases, the Vienna-based group said in a Press statement.
Sunday’s discussions agreed on new output quotas for several members from May 2022, including the UAE, Saudi Arabia, Russia, Kuwait and Iraq. The overall adjustment will add 1.63 million bpd to supply from May next year.
The UAE will see its baseline production, from which cuts are being calculated, increase to 3.5 million bpd from May 2022 from today’s 3.16 million.
Saudi and Russia will see their baselines rise to 11.5 million bpd each from the current 11 million. Iraq and Kuwait will see their baselines rise by 150,000 bpd each. Nigeria and Algeria could also see their baselines revised.
“We appreciate the constructive dialogue we had with Opec,” said the UAE’S Energy Minister Suhail bin Mohammed Faraj Faris Al Mazrouei.
“I confirm that the UAE is committed to this group and will always work with it and within this group to do our best to achieve the market balance and help everyone. The UAE will remain a committed member in the Opec alliance,” Al Mazrouei said.
“What bonds us together is way beyond what you imagine,” Saudi Energy Minister Prince Abdulaziz bin Salman
We appreciate the constructive dialogue we had with Opec. I confirm that the UAE is committed to this group and will always work with it and within this group to do our best to achieve the market balance and help everyone Suhail bin Mohammed Faraj Faris Al Mazrouei UAE Minister of Energy and Infrastructure
said. “We differ here and there but we bond.”
The grouping will “assess market developments” in December, it said. The group had agreed to extend their overall pact until the end of 2022 from an earlier planned date of April 2022, to leave more room for manoeuvre in case global recovery stalls due to new virus variants.
Oil prices are likely to stay stable above $70 per barrel following a deal reached by major crude producers on Sunday, experts say.
Analysts and market insiders termed the output deal by the Organisation of the Petroleum Exporting Countries (Opec), Russia and other producers a step in the right direction to ensure price stability in the wake of economic recovery after successful vaccination drives rolled out across the globe.
“There is a clear toppish formation in crude oil price near $75 per barrel. The $70 mark will likely be tested in the continuation of the actual downside correction, as rising Covid cases also weigh on sentiment even though the recovery in travelling hasn’t taken a hit for the moment,” said Ipek Ozkardeskaya, a senior analyst at Swissquote.
An Opec+ meeting agreed to raise output by 400,000 bpd each month from August to help fuel a global economic recovery as the pandemic eases. Last year, the group cut production by a record 10 million bpd amid a pandemicinduced slump in demand and collapsing prices.
The group has gradually reinstated some supply to leave it with a reduction of about 5.8 million bpd.
Ehsan Khoman, head of emerging markets research at MUFG Bank, believes that the contours of such a deal articulates to markets that Opec+ still remains coordinated around a singular message, with tapering of its remaining 5.8 million bpd production still to be expected in the months ahead.
“Reports suggest that a deal will see the Opec+ agreement extended from its current March 2022 expiry to December 2022 and the UAE’S baseline rise by 15 per cent from 3.17 million bpd to 3.5 million bpd from April 2022,” Khoman said.
Robin Mills, chief executive of Dubai-based consulting firm Qamar Energy, said the deal is good for consumers in the short term, but price pressures will remain as demand builds in coming months.
International benchmark Brent crude is up 43 per cent year-to-date and up more than 60 per cent from this time last year, with many forecasters expecting to see oil trading at $80 a barrel in the second half of 2021. Brent closed at $73.59 a barrel at the end of the trading day on Friday while US crude oil for August delivery rose 16¢ to $71.81 a barrel.
Giovanni Staunovo, a commodity analyst at Swiss bank UBS, said the market will be tight this summer.
Another energy analyst, Anas Alhajji, said the Opec+ base increases are not as bearish as they may appear. “The objective is to maintain order and the integrity of the agreement. Reserving ‘production space’ is an important tool to control production ceiling. Actual production may not increase,” he tweeted after the deal.