The safer tanker repair mission is meant to prevent a potential oil spill that could shut Yemen’s key port of Hodeidah.
OPEC negotiations are always a tactical dance, but the footwork is looking more delicate than usual after Monday’s meeting of the cartel failed to produce a decision on whether to extend oil production cuts into next year.
A formal call on whether to keep the taps tightened is now expected on Tuesday – the final day of a two-day meeting of the Organization of the Petroleum Exporting Countries and its allies led by Russia, a grouping known as OPEC+.
But before the members gathered, there were mounting signs of discontent within the fragile alliance.
“OPEC has always been a very black box,” Samantha Gross, director of the Energy Security and Climate Initiative at the Brookings Institution, told Al Jazeera. “I think they like it that way. I think it’s part of the game. They use that to their advantage and so they’re going to keep themselves shrouded in mystery until tomorrow.”
It’s no mystery, though, that oil prices have fallen under severe pressure this year as the coronavirus pandemic guts global crude demand.
After prices crashed earlier this year, the alliance reached a historic deal in April to slash production by 7.7 million barrels per day (bpd) – about eight percent of global supply.
As part of that original deal, the taps were set to start opening again in January, with the group raising target production by 1.9 million bpd.
But the forecast on which that call was made is now woefully out of date.
A new wave of COVID-19 infections sweeping Europe and the United States has ushered in more business-sapping restrictions and lockdowns, denting the outlook for oil demand. If OPEC+ loosens the taps as planned in January, Rystad Energy reckons there will be a new 200-million-barrel surplus through May in global oil markets.
That is ugly maths for state budgets reeling from the double blow of coronavirus restrictions and falling oil prices – which explains why the alliance is widely expected to extend production cuts into the first quarter of 2021.
“It’s not just doing the right thing for the oil market. It’s doing right for their bottom line – being able to sustain an obligation to your citizens, being able to keep the lights on in your country,” Louise Dickson, an analyst at Rystad Energy, told Al Jazeera.
Alegria’s energy minister, who currently holds OPEC’s rotating presidency, reportedly said on Monday that the cartel reached a consensus to extend cuts by three months. That would reinforce the status quo on prices say, analysts, while a six-month extension would help clear the storage glut and lift prices meaningfully.
But the devil is in the details. And after a sharp rally last week on positive coronavirus vaccine news, oil prices were under pressure again on Monday. Global benchmark Brent crude for January delivery fell 59 cents to settle at 47.59 a barrel while US benchmark West Texas Intermediate crude fell 19 cents to settle at $45.34 a barrel.
Spoilers, players and the exempt
OPEC+ has always been a prickly alliance dominated by Saudi Arabia and Russia. But in the run-up to this week’s meeting, reports surfaced of discontent among smaller members – notably Iraq, Kazakhstan and the United Arab Emirates (UAE).
After Bloomberg News reported that the UAE – OPEC’s third-largest producer – was privately questioning whether to remain in the alliance, the country’s energy minister reaffirmed the UAE’s commitment to the group.
“Is the alliance at risk of unravelling? There are always fragile cracks, but overall, the 22 countries have a relatively aligned market management strategy in the unprecedented times of the pandemic. There are of course producers that would like to produce more crude than the OPEC arrangement allows for,” Dickson told Al Jazeera.
There are also rumblings emanating from Iraq, OPEC’s second-largest producer.
The country’s Deputy Prime Minister Ali Allawi reportedly said during a virtual conference last week that he is no longer willing to accept the alliance’s “one size fits all” approach to production cuts and wants elements such as per capita income and sovereign wealth funds to factor into pumping quotes for individual members.
The depths of Iraq’s financial struggles were thrown into stark relief last week after Bloomberg News reported that Baghdad was seeking an upfront payment of roughly $2bn for crude shipments.
Dickson says Iraq – and Russia for that matter – may be looking for greater leniency for members who overshoot quotas.
“Part of their strategy of making the noise is to get a free pass on overproducing,” she said. “Everyone is just trying to get the best deal they can.”
OPEC+ member Kazakhstan has also indicated it wants to boost production in the new year.
“Kazakhstan is an interesting case, too, because they could be easily swayed by Russia,” Dickson continued. “The alternative view is that Russia wants out [of the cuts] and they have asked Kazakhstan to trigger the fire, but I don’t think that’s likely.”
Meanwhile, Iran and Venezuela are exempt from OPEC+’s cuts due to the devastating impact US sanctions and internal political strife have had on their oil industries.
Libya has also been exempt, though that could change with the country swiftly ramping up its oil production following a landmark ceasefire deal among warring groups.