Opec and its allies did not reach an agreement to raise oil production on Friday while negotiations stalled for a second day, with the UAE remaining opposed to an agreement that did not address concerns about its own production purpose.
When oil prices traded near their highest level in three years, at around $ 76 a barrel, the White House marked the impact of the ongoing rally on American motorists as the global economy grows. recovering from the initial blow from the pandemic.
The Opec + group said it would meet by videoconference on Monday at 3pm in Vienna, with the meeting likely to be followed closely by growing concerns about inflation in all markets.
“The next few days may show how much diplomatic capital the White House wants to expand to prevent three-digit oil prices,” Helima Croft told RBC Capital Markets, reiterating warnings that crude is likely to escalate if the group fails. agree to add more produce to the market.
Saudi Arabia and Russia had proposed to increase production by 400,000 barrels per month between August and December, which other countries have largely supported. They are also looking to extend a supply deal between Opec + producers beyond next April, when it was expected to expire, in the latter half of 2022.
But since Thursday, the UAE has opposed the extension of any agreement without re-evaluating its own production allocation, saying its share set in the original supply-cut agreement – at the time of the April coronavirus crisis 2020 – did not take into account its maximum output capacities.
UAE officials have felt deprived of losing production revenues by being asked to cut proportionally more than Saudi Arabia, exposing growing tensions between two traditional Gulf allies.
“The breakdown on which production base to use for supply cuts and the wider risk of UAE potentially leaving Opec would have seemed unthinkable 72 hours ago,” Croft added. She said the UAE’s push for higher production came after it launched a high oil benchmark earlier this year. “One wonders if.” [that was when] death has been thrown away, ”Croft said.
When some of the largest listed oil companies in the world retire from fossil fuel companies, Sultan Al Jaber, head of the Abu Dhabi National Petroleum Company, has not been excused for expanding the UAE’s production capacity.
“We will not leave any opportunity without a return,” he told the Financial Times in an interview. “We are continuing exploration programs, identifying proven reserves, increasing production.”
As discussions between ministers dragged on on Friday, raising the prospect of a further escalation in oil prices, the White House said there was “absolutely” concern about the impact on consumers. US regulars at the pump.
Traders have questioned whether the relatively modest production increases proposed will be enough to prevent prices from continuing to rise and allay fears of inflation. But the absence of any production growth, in case negotiations fail to reach a solution on Monday, would probably push them higher.
The Opec + group stopped short of recording cuts of 10m b / d last year to compensate for a drop in oil demand as governments imposed blockades and travel bans to curb the spread of the coronavirus.
Subsequently, producers have slowly released more barrels to the market, with cuts currently at just under 6m b / d, while trying to balance a rebound in oil demand with persistent uncertainties related to the virus.
Opec delegates are concerned about Covid-19 variants spreading around the world while keeping a close eye on a production boom from Iran as discussions continue with the United States over the lifting of sanctions on their exports.
Some analysts believe that Saudi Arabia wants a slightly higher price both to increase revenues in government coffers and to encourage more long-term investments in the industry, fearing that the market may face shortcomings in the near future. years.
The government does not want to see real shortcomings that could trigger a large rise in prices, believing it would accelerate the shift towards renewable energy at a time when it is still heavily dependent on oil revenues.
The latest split also raised questions about the relationship between Saudi Arabia and the UAE, which was for a long time among the most powerful alliances in OPEC. It was undoubtedly weakened by the introduction of Russia when the largest Opec + group was formed in 2016.
Last year, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman punished some members for producing above his target quota, even though he was sitting next to his UAE counterpart, Suhail. Al Mazrouei, knowing that his Gulf counterpart was one of the countries with a high production.
Bill Farren-Price, a former Opec watchdog and Enverus analyst, said some of the tension in the UAE’s relationship with Saudi Arabia probably went beyond different points of view on the Opec + agreement. . “While they remain closely linked, I don’t think they necessarily share the same strategic interests and don’t want to be very closely linked,” Farren-Price said.
“I think there’s less interest in being associated with a group that controls oil production at a time when they’re strengthening ties in the West, and when they see their long-term oil policy as more about maximizing volume. in the face of any peak demand. ”
More information from Lauren Fedor