UAE rebuffs plan by OPEC, Saudi Arabia to extend production pact
UAE energy ministry says OPEC Plus proposal to extend pact to cut oil production until end of 2022 is ‘unfair’.
The United Arab Emirates has pushed back against a plan by the OPEC oil cartel and allied producing countries to extend the global pact to cut oil production beyond April 2022, a rare statement revealing the country’s frustration with the group.
The Emirati Ministry of Energy called the proposal to extend the agreement for the entirety of 2022 without raising its production quota “unfair to the UAE,” according to the state-run news agency WAM.
One of the group’s largest oil producers, the UAE is seeking to increase its output – setting up a contest with ally and OPEC heavyweight Saudi Arabia, which has led a push to keep a tight lid on production.
Video conference talks were held on Friday between the 13 members of OPEC proper, followed by a technical meeting and discussions between the 23 members of OPEC Plus.
But the combined OPEC Plus grouping of members led by Saudi Arabia and non-members, chief among them Russia, failed to reach an agreement on oil output. Negotiations over the dispute are set to resume on Monday.
The UAE said it supported plans for output increases over the summer, believing the market to be “in dire need of higher production”.
The country suggested deferring the whole discussion of the agreement’s extension to a later meeting and appealed for an updated production quota that “reflects our current production capacity”.
Later on Sunday, Saudi Arabia’s energy minister said the supply pact due to end in April 2022 should continue for longer, Saudi-owned Asharq television reported.
Asharq also quoted the prince as saying there should be an increase in production to meet an expected decline in oil supply during the summer period.
Iraq Oil Minister Ihsan Abdul Jabbar also backed the OPEC Plus proposal to extend the pact on output curbs until December 2022, adding he expected oil prices to remain at $70 per barrel or above until then.
Iraq also agreed with a proposal that the group should increase its output by 400,000 barrels per day from August.
Speaking at a news briefing in Baghdad on Sunday, he said Iraq’s oil exports will be 2.9 million bpd in July, marking full compliance with the current OPEC agreement. The country exported crude at the same rate in June, official figures show.
Oil price plunge
OPEC faces conflicting pressures after last year’s plunge in oil prices as the pandemic wiped out travel and energy use.
The oil producers’ sharp output cuts kept prices from collapsing even more than they did.
Raising production now, as vaccination campaigns stoke hopes of economic recovery, would increase revenues for producing countries that have seen their budgets hard hit by lower prices. But pumping too much too soon could undermine the rebound in energy prices.
In an interview with CNBC on Sunday, Emirati Energy Minister Suhail al-Mazrouei voiced concerns over the Saudi-led production restraints.
“Everyone sacrificed but, unfortunately, the UAE sacrificed the most, making one-third of our production idle for two years,” he said.
Saudi Arabia has shouldered the deepest production cuts and urged caution, saying that oil demand and economic recovery from the pandemic remain fragile around the world.
The hitch in discussions came “due to the UAE raising a last-minute objection to the Russian-Saudi Arabia deal reached earlier”, according to analysts from Deutsche Bank.
“The UAE, which has raised its production capacity since 2018 when the individual baselines were set, insisted on having its baseline lifted by 0.6 million barrels per day (bpd) to 3.8 million bpd, thereby allowing them a unilateral production increase within the current quota framework,” according to Ole Hansen from Saxobank.
“Negotiations … will be difficult as OPEC Plus knows that if the UAE is allowed to produce from a different base, other members may protest,” said Louise Dickson from Rystad.
Saudi Arabia’s energy minister said on Sunday that no country can use a single month as a baseline production reference, Al Arabiya TV reported.
The Saudi-owned television channel also quoted Prince Abdulaziz bin Salman as saying he was neither optimistic nor pessimistic about OPEC Plus talks due to resume on Monday.
OPEC Plus essentially faces a choice between acceding to Abu Dhabi’s demands, or failing to reach a deal that could drive crude prices sharply higher. Also at risk is the unity of the alliance, which if broken could potentially trigger a price war.