The United Arab Emirates opposed OPEC’s oil cartel and allied producers’ plans to extend the global production reduction agreement beyond April 2022. This rare statement shows the country’s disappointment with the organization.
According to a report by the state-run news agency WAM, the UAE’s Ministry of Energy stated that the proposal to extend the agreement to the full year of 2022 without increasing its production quota is “unfair to the UAE”.
As one of the group’s largest oil producers, the UAE is seeking to increase production-competing with its allies and OPEC heavyweight Saudi Arabia, which has led to strict restrictions on production.
On Friday, a video conference meeting was held among the 13 OPEC member states, followed by technical meetings and discussions among the 23 OPEC member states.
However, OPEC+ members and non-members (mainly Russia) led by Saudi Arabia failed to reach an agreement on oil production. Negotiations on the dispute are scheduled to resume on Monday.
The UAE expressed its support for the summer production increase plan, believing that the market “emergencyly needs to increase production.”
The country proposed to postpone the entire discussion on the extension of the agreement to a later meeting, and called for an update of production quotas to “reflect our current production capacity.”
According to a report by Saudi-owned Asharq TV, late Sunday, the Saudi Energy Minister said that the supply agreement scheduled to end in April 2022 should last longer.
Asharq also quoted the prince as saying that production should be increased to meet the expected decline in oil supply during the summer.
Iraqi Oil Minister Ihsan Abdul Jabbar also supports OPEC Plus’s proposal to extend the production reduction agreement to December 2022, adding that he expects oil prices to remain at $70 per barrel or higher by then.
Iraq also agreed to the group’s proposal to increase production by 400,000 barrels per day starting in August.
He said at a press conference in Baghdad on Sunday that Iraq’s oil exports in July will reach 2.9 million barrels per day, which marks full compliance with the current OPEC agreement. Official data show that the country’s crude oil export rate was the same in June.
Oil prices plummeted
Following the collapse of oil prices last year, OPEC is facing conflicting pressures as the pandemic has greatly reduced travel and energy consumption.
Oil producers’ sharp cuts in production will keep prices no worse than they did.
Now increase production because the vaccination campaign has ignited hopes of economic recovery, which will increase the income of those producing countries whose budgets have been hit hard by price drops. But pumping too much water too early may destroy the rebound in energy prices.
In an interview with CNBC on Sunday, UAE Energy Minister Suhail al-Mazrouei expressed concerns about Saudi-led production restrictions.
“Everyone has made sacrifices, but unfortunately, the UAE has made the most sacrifices, which left one-third of our production idle for two years,” he said.
Saudi Arabia has undertaken the worst production cuts and urged caution, saying that oil demand and economic recovery from the pandemic around the world are still fragile.
Deutsche Bank analysts said that the obstacle to the discussion was “because the UAE had objected to the earlier Russia-Saudi Arabia agreement at the last minute”.
“Since the establishment of individual baselines in 2018, the UAE has increased its production capacity and insisted on increasing its baseline by 600,000 barrels/day to 3.8 million barrels/day, allowing them to unilaterally increase production within the current quota framework,” Ole Hansen of Saxo Bank Said.
Rystad’s Louise Dickson said: “Negotiating… will be difficult because OPEC Plus knows that if the UAE is allowed to produce from different bases, other members may protest.”
According to a report by Arab Television, Saudi Arabia’s energy minister said on Sunday that no country can use one month as a reference for benchmark production.
The Saudi-owned TV channel also quoted Prince Abdulaziz bin Salman as saying that he is neither optimistic nor pessimistic about the OPEC+ negotiations that will resume on Monday.
OPEC+ basically faces a choice: either accept Abu Dhabi’s requirements or fail to reach an agreement that may push up crude oil prices. The unification of the alliance is also at risk, and if it breaks, it may trigger a price war.