OPEC and non-OPEC ministers will reconvene on Friday to discuss the next phase of oil production policy after a preliminary agreement was thought to have been blocked at the last minute the day before.
The energy alliance, often referred to as OPEC+, will meet via videoconference on Friday afternoon to decide on whether to keep output policy unchanged or to ramp up supply further.
The unexpected rescheduling of the meeting comes after the United Arab Emirates reportedly objected to a plan for an easing of cuts and their extension to the end of next year, according to Reuters.
Oil prices moved on the news, rising slightly Thursday before losing momentum Friday as traders digested the implications. In U.S. morning trade, international Brent crude futures traded at $75.45 a barrel, down 0.5% for the session, while U.S. West Texas Intermediate futures stood at $74.89, around 0.4% lower.
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 rising demand, Reuters reported, citing unnamed OPEC+ sources.
OPEC kingpin Saudi Arabia and non-OPEC leader Russia had also proposed extending the duration of cuts until the end of 2022, according to Reuters.
However, Reuters reported that the UAE opposed these plans on the grounds that OPEC+ should change the baseline for cuts, effectively raising its production quota.
Rising tensions
Neil Atkinson, an independent oil analyst, told CNBC’s “Squawk Box Europe” on Friday that tensions between the UAE and other OPEC+ members had been “bubbling under for quite some time now.”
“The Abu Dhabi National Oil Company has been investing in new capacity, it’s been taking a more active role in trading,” he said, adding that it has perhaps started operating more like an international oil company than a national oil company. Unlike international oil companies, decisions taken by national oil companies tend to be influenced by the state.
“They look to the future, they see demand for oil continuing to grow in the medium term, they’ve installed more capacity and they want a greater share of that market as we move through the 2020s,” he added.
Oil demand will grow for most of the rest of this decade — and arguably beyond, analyst says
Analysts at risk consultancy Eurasia Group said they believe the oil producer group is still likely to reach a deal.
“The UAE might be negotiating but it is unlikely to muster courage to risk it all till the very end. It will want to avoid sabotaging an OPEC+ agreement and potentially being blamed for a rise in oil prices that increases global inflation,” the analysts said Friday, noting that the UAE’s own relationship with Asian energy clients could suffer if prices continue to increase.
“While a UAE withdrawal from OPEC+ should definitely not be dismissed, such a decision would be surprising. Such a move would compromise Abu Dhabi’s relationship with Riyadh, its broad positioning in the region, and its ability to build alliances over the long-term. Therefore, compromise appears to be the most likely outcome.”
OPEC+, which is dominated by Middle East crude producers, agreed to implement massive crude productions cuts in 2020 in an effort to support oil prices when the coronavirus pandemic coincided with a historic fuel demand shock.
