LONDON: Opec+ resumes talks on raising oil output yesterday after the UAE blocked a deal the previous day, creating a standoff that could delay plans to pump more oil through the end of the year to cool prices that have soared to 2-1/2 year highs.
Without a deal, the Opec+ alliance could keep tighter restraints on output with oil prices now trading around $75 a barrel, more than 40 per cent up this year, while consumers want more crude to aid a global recovery from the Covid-19 pandemic.
The rise in oil prices is contributing to global inflation, slowing the economic recovery from the pandemic.
The UAE put the brakes on a deal that had been pushed by top producers Saudi Arabia and Russia to increase output by 2m barrels per day (bpd) by the end of 2021 and extend remaining cuts to the end of 2022, instead of ending in April.
Talks between the Organisation of the Petroleum Exporting Countries, Russia and other producers, the alliance known as Opec+, resumed at 6pm Bahrain time. Key ministers meet first as part of a joint monitoring ministerial committee (JMMC), followed by a full ministerial meeting.
Responding to oil demand destruction caused by the Covid crisis, Opec+ agreed last year to cut output by almost 10m bpd from May 2020, with plans to phase out the curbs by the end of April 2022. Cuts now stand at about 5.8m bpd.
If UAE blocks any deal, the remaining cuts would likely stay in place. There is also a slim chance the deal could fall apart and all countries could pump as much as they want.
Opec+ sources said the UAE did not oppose the principle of hiking output by the group but wanted its own production to be higher. It said its baseline – the level from which any cuts are calculated – was originally set too low, an issue it raised before but was ready to tolerate if the deal ended in April.
Opec+ sources said the UAE wanted to have its baseline production set at 3.84m bpd versus 3.168m bpd now.
If its baseline is changed, it could mean adding more oil to the market than planned or other producers would have to accept a lower increase.
The UAE has ambitious production plans, investing billions of dollars to boost capacity. The Opec+ pact has left about 30pc of UAE capacity idle, sources familiar with UAE thinking say.
Abu Dhabi’s position signalled that “as their frustration grows, they will begin to act more in their national interest than the collective interest of Opec and we will see more a independent course of action based on the UAE’s view of its place in the looming post hydrocarbon world,” said Neil Quilliam, an associate fellow at Chatham House.
The UAE has argued that it was not alone in requesting a higher baseline as other countries such as Azerbaijan, Kuwait, Kazakhstan and Nigeria had requested and received new baselines since the deal was agreed.
In the build up to the meeting this week, Opec+ sources had said Russia was insisting on releasing more oil to the market as the rise in prices was encouraging the growth of rival US shale output – which tends to need higher prices to be economic.
Opec’s leader Saudi Arabia had taken a more cautious approach saying fewer barrels should be released given uncertainties that remained about the course of the pandemic, with virus variants causing new outbreaks in many countries.