Saudi Arabia and Russia are working toward an agreement to prudently release more barrels into the oil market in the coming months, as prices escalate to the highest level in nearly three years, but officials have been slow. a final decision on supply policy by Friday.
Opec and its off-cartel partners met virtually for preliminary meetings Thursday to discuss the gradual monthly growth in production of several hundred thousand barrels per day between August and December.
But they failed to reach an agreement on production levels, postponing an official meeting of the so-called Opec + group until Friday afternoon, when any decision would have to be formally signed by all member countries.
People familiar with the discussions said that OPEC and its allies have considered a proposal for a production increase of 400,000 b / d each month, which is less than 500,000 b / d initially proposed in recent weeks and months. .
But some points of attack remain, with members such as the UAE pushing for a higher individual production share. The UAE argues that the original agreement dealing with the agreement that was reached at the height of the pandemic last year underestimated the country’s productive capacity.
“The UAE has increased its production capacity, so it is likely that they are pushing for a higher production target in each revised agreement,” said Amrita Sen at Energy Aspects, an energy consultancy advising several OPEC members.
“It may seem like a relatively minor point, but we’ve seen these debates approach close to the expiration of the Opec agreements before.”
Traders and analysts were already skeptical that the volumes in question would be enough to plant a near 50 per cent rally in oil since the beginning of the year, with demand picking up sharply from the depths of the pandemic.
Saudi Arabia seeks to increase production only with caution, as persistent uncertainties caused by the Covid-19 crisis and new variants of the virus hang on policymakers.
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People close to the kingdom said their strongest motivation was that they did not want to see prices fall and that they would prefer to be marginally higher, not only to provide the country with more revenue from oil sales, but also because they believe that more investment in the energy industry was needed.
Russia, which has struggled to maintain its market share, has been under pressure for months for more aggressive pressures.
“Maintaining price stability at high levels, while at the same time increasing its output, could be in the best interest of Opec +,” Louise Dickson told Rystad Energy, a consultant.
Brent crude, the international benchmark for oil, widened its gains Thursday, with the price rising more than 2.4 percent above $ 76 a barrel, near the highest level since 2018. Prices they dropped to $ 75.61 later in the day. West Texas Intermediate, the U.S. benchmark, hit $ 75 a barrel for the first time in nearly three years.
Investments in the sector have fallen sharply in recent years, and traders and analysts are increasingly warning which could lead to prices jumping above $ 100 a barrel if supply seems likely to fall short in the coming years – a price level that Saudi Arabia fears will ultimately hurt its interests because it would accelerate the distance from oil.
“Saudi Arabia believes that without greater investment in oil production worldwide there is the danger of prices ultimately surpassing,” said Christyan Malek, head of oil and gas at JPMorgan.
“Allowing oil prices to run higher today will prevent an increase in the price of oil in the future driven by the current paralysis of investments.”
Although OPEC delegates predict stronger oil consumption in the last half of 2021, they are concerned about the trajectory of the virus, said Diamantino Azevedo, Angola’s oil minister, when the meeting of ministers is underway Thursday.
Apec expects a “strong rebound in oil demand in the second half of the year,” Azevedo said. But he acknowledged that the virus was still taking a “painful toll” in large parts of the world with “thousands of lives still lost every day.”
Concerns about the new variants mean that ministers have considered holding back on global supplies in place beyond April 2022, when the original agreement to reduce production was agreed at the height of the pandemic last year. , had to end.
The Opec + group agreed in April 2020 to reduce production by almost 10m b / d, or about 10 percent of global demand, since widespread blockades and travel bans have reduced oil consumption. The group has already begun to gradually eliminate the edges, with current restrictions at just under 6m b / d.
“As closures end in the largest consumer nations, such as the United States and China, demand returns to more normal levels each quarter,” Ann-Louise Hittle told energy consultant Wood Mackenzie.