Oil production policy decision in center of attention as prices rise
The logo of the Organization of the Petroleum Exporting Countries (OPEC) at the headquarters.
Omar Marques | LightRocket | Getty Images
LONDON – OPEC and non-OPEC ministers will meet again on Friday to discuss the next phase of oil production policy after a preliminary deal was reportedly stalled at the last minute the day before.
The energy alliance, often referred to as OPEC +, will meet by videoconference on Friday afternoon to decide whether to keep production policy unchanged or increase supply further.
The unexpected postponement of the meeting comes after the UAE reportedly opposed a plan to ease the cuts and extend them until the end of next year, according to Reuters.
Oil prices moved based on the news, rising slightly on Thursday before losing momentum on Friday as traders digest the implications. International Brent crude futures traded at $ 76.03 per barrel, up 0.2% for the session, while US West Texas Intermediate futures were at 75. $ 12, or about 0.15% less.
The OPEC alliance had agreed in principle to increase supply by 400,000 barrels per day from August to December 2021 in order to meet growing demand, Reuters reported, citing anonymous OPEC + sources.
OPEC baron Saudi Arabia and non-OPEC leader Russia had also offered to extend the length of the cuts until the end of 2022, according to Reuters.
However, Reuters reported that the UAE opposed the plans on the grounds that OPEC + would have to change the baseline of the cuts, thereby increasing its production quota.
Neil Atkinson, an independent oil analyst, told CNBC’s “Squawk Box Europe” on Friday that tensions between the UAE and other OPEC + members “have been rising for some time.”
“The Abu Dhabi National Oil Company has invested in new capacity, it is playing a more active role in trade,” he said, adding that it may have started to operate more as an oil company. international than as a national oil company. Unlike international oil companies, decisions made by national oil companies tend to be influenced by the state.
“They are looking to the future, they see the demand for oil continuing to grow in the medium term, they have installed more capacity and they want a bigger share of this market as we move into the 2020s,” a- he added.
Analysts at risk consultancy Eurasia Group said they believed the group of oil producers was still likely to reach a deal.
“The UAE may be negotiating, but they are unlikely to find the courage to risk it all to the end. They will want to avoid sabotaging an OPEC + deal and potentially being blamed for a hike. of oil prices which increases global inflation, ”analysts said. Friday, noting that the UAE’s own relationship with Asian energy customers could suffer if prices continue to rise.
“While a withdrawal of the UAE from OPEC + should certainly not be rejected, such a move would be surprising. Such a move would jeopardize Abu Dhabi’s relations with Riyadh, its broad positioning in the region and its ability to building long-term alliances. Therefore, compromise seems to be the most likely outcome. “
OPEC +, which is dominated by Middle Eastern crude producers, has agreed to implement massive crude production cuts in 2020 in a bid to support oil prices when the coronavirus pandemic coincides with a shock fuel demand history.
Led by Saudi Arabia, a close ally of the United Arab Emirates, OPEC + has since held monthly meetings with the aim of navigating production policy and has already announced plans to increase supply by 2.1 million barrels per day between May and July.
Analysts expected the energy alliance to increase supply by about 500,000 barrels per day starting next month, slightly more than the announced proposal to increase by 400,000 barrels.
Oil prices have risen more than 45% year-to-date in the first half of the year, supported by the rollout of Covid-19 vaccines, a gradual easing of lockdown measures and massive production cuts from OPEC +.
US investment banks on Wall Street still see a lot of room for maneuver in the coming months.
The optimistic outlook for oil prices comes as the world’s three major forecasting agencies – OPEC, the International Energy Agency and the US Energy Information Agency – expect that a demand-driven recovery accelerates in the second half of 2021.
However, the spread of the Covid-19 delta variant around the world has heightened fears of declining demand for oil. Renewed lockdowns and rising costs have already resulted in slower plant growth in China, for example.