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LONDON: After failing last week to agree on crude oil output levels, the 23 members of the OPEC+ group of producers called off a meeting planned yesterday to overcome the impasse, a source close to the alliance told AFP. No new date was given for them to reconvene. Since May, the group has raised oil output little by little, after slashing it more than a year ago when the coronavirus pandemic crushed demand.
At stake is the current proposal that would see the world’s leading oil producers raise their output by 400,000 barrels per day (bpd) each month from August to December. That would add a further two million bpd to markets by the end of the year, helping to fuel a global economic recovery as the coronavirus pandemic is brought under control.
But that plan risks being delayed or even failing over a further proposal to extend the cap on incremental increases through to the end of 2022. “The market is now fearing several scenarios,” said Bjarne Schieldrop, a Norway-based analyst with SEB. In one, there is no deal and no increase in production, sending oil prices shooting up, he said. Another sees a “free-for-all (in) production and a collapse in the oil price”.
North Sea Brent and West Texas Intermediate, the most widely traded crude oil futures contracts, rose to their highest levels since Oct 2018 after the meeting was postponed. Brent traded 1.16-percent higher at $77.05 a barrel, while WTI was up by 1.34 percent at $76.17. Holding out against the new deal however, is the United Arab Emirates, which on Sunday criticized the terms of that extension as unjust.
Oil prices, which had already been sliding owing to concerns about the global economy, plummeted in April 2020 as coronavirus spread around the world and battered global consumption, transport and supply chains. OPEC+ decided to withdraw 9.7 million bpd from the market and to gradually restore supplies by the end of April 2022. Benchmark oil prices rebounded as a result, and have lately been hovering around $75 a barrel, up by about half since the beginning of this year.
But the return to pre-pandemic production levels has stalled several times because of the shifting fortunes in the fight against COVID-19. The alliance is still pumping 5.8 million bpd less than it was before the pandemic. The April 2022 deadline on capping output now seems too close, and some members want to extend it until Dec 2022 – and this is what Abu Dhabi objects to.
The United Arab Emirates has said it wants to revise the reference level used to calculate the amount by which it must reduce output, Energy Minister Suhail Mohamed Al-Mazrouei told the WAM news agency. The UAE’s 3.17 million bpd reference level, set in Oct 2018, was well below its effective potential output level of 3.8 million bpd in April 2020, just before the cuts took effect.
It was this issue that caused last week’s talks to break down. The meetings, more used to big hitters Russia and Saudi Arabia setting the agenda, were confronted with the UAE’s refusal to toe the line. “It is the whole group versus one country,” Saudi Energy Minister Abdulaziz bin Salman told Bloomberg TV.
In a separate interview with Al-Arabiya television aired late on Sunday, Prince Abdulaziz called for “a bit of rationality and a bit of compromise”. RBC Capital Markets analyst Helima Croft went further. “The prospect of a no-deal outcome – as well as a UAE OPEC exit – has risen materially, even if it has not yet fully entered into firm base-case territory,” she wrote. – AFP