Oil Production Dips by 56.5m Barrels in Six Months
The Organisation of Petroleum Exporting Countries (OPEC) has moved to sort out its impasse with the United Arab Emirates (UAE), with a compromise deal being hammered out that could allow the Gulf nation to pump more oil next year, Bloomberg reported yesterday.
The talks, involving the UAE and Saudi Arabia, are still ongoing and any deal would need the support of other OPEC+ nations, according to delegates familiar with the discussions.
While one delegate said the deal was effectively done, another said discussions were continuing, but the UAE’s energy ministry issued a statement acknowledging the talks, but said no agreement had yet been reached with the OPEC group.
The negotiations are nonetheless the first sign that Riyadh and Abu Dhabi are moving to cool off tensions after an unusually public fight earlier this month, when the UAE blocked an OPEC+ deal to boost production, sending oil prices above $75 a barrel.
The UAE is demanding the right to produce more oil next year in return to support extending the current OPEC+ agreement from April 2022 until December 2022.
The current talks centred on agreeing to a higher output target for the UAE as Abu Dhabi initially asked to set its target at 3.8 million barrels a day next year, although current talks are for a target of around 3.6 million barrels a day.
Oil fluctuated on the news, with Brent crude down 0.3 per cent yesterday to rally at $76.25.
Last week, OPEC and its allies were forced to abandon a tentative deal to boost oil production because of lastminute objections from the UAE.
If the compromise is ratified at a new meeting, it could potentially open the way to higher output, although some members have already locked in most of their supply volumes for August.
The UAE will set a new baseline of 3.65 million barrels a day for its production cuts, the delegate said, which would be an increase from about 3.17 million currently – a level the country has argued is unfairly low.
The emirates will now support a proposal from Saudi Arabia to extend the duration of the OPEC+ cuts agreement to December 2022, one delegate said.
If there’s a preliminary understanding to grant the UAE a new production baseline of 3.65 million b/d from May 2022, which would be an increase of about 480,000 b/d from its current baseline of 3.168 million b/d, which will remain in place through April.
It is less than the close to 700,000 b/d rise that the UAE had been seeking, but would also be a concession from Saudi Arabia, which had wanted to hold the line on output targets through the end of 2022.
Baselines, which were set using October 2018 production volumes are used by the OPEC+ alliance to set output quotas, so a higher baseline for the UAE would result in a more generous allocation.
Delegates from other OPEC+ members said they had yet to be briefed about the deal, which would need to be unanimously approved by the 23 countries in the coalition.
The rift between Saudi Arabia and the UAE has threatened to scupper a largely agreed accord for the OPEC+ group to lift output by 400,000 b/d monthly and extend their supply management pact beyond its April expiry through the end of 2022. The UAE has been the lone dissenting country.
A new deal may be too late to take effect for August, with many members’ national oil companies already informing their contractual customers of the volumes of crude they would be receiving for the month.
The OPEC+ alliance is currently withholding about 5.8 million b/d of crude production, which it intends to unwind as demand recovers from the pandemic.