LONDON: After failing last week to agree on crude oil output levels, the 23 members of the Opec+ group of producers called off a meeting planned on Monday to overcome the impasse, a source close to the alliance said. No new date was given for them to reconvene.
Since May, the group has raised oil output little by little, after slashing it more than a year ago when the coronavirus pandemic crushed demand.
At stake is the current proposal that would see the world’s leading oil producers raise their output by 400,000 barrels per day (bpd) each month from August to December.
That would add a further two million bpd to markets by the end of the year, helping to fuel a hoped-for recovery in the global economy as the coronavirus pandemic is brought under control.
But that plan risks being delayed or even failing over a further proposal to extend the cap on incremental increases through to the end of 2022.
“The market is now fearing several scenarios,” said Bjarne Schieldrop, a Norway-based analyst with SEB.
In one, there is no deal and no increase in production, sending oil prices shooting up, he said. Another sees a “free-for-all (in) production and a collapse in the oil price”.
The hold-out is the United Arab Emirates, which on Sunday criticised the terms of that extension as unjust.
A video conference between OPEC members and their 10 allies was due to begin at 1300 GMT, but the meeting was called off a few hours later with no new date set.
Oil prices, which had already been sliding over concerns about the global economy, slumped in April 2020 when the coronavirus spread around the world and battered global consumption, transport and supply chains.
Opec+ decided to withdraw 9.7 million bpd from the market and to gradually restore supplies by the end of April 2022.
Benchmark oil prices rebounded as a result. North Sea Brent and West Texas Intermediate, the most widely traded crude oil futures contracts, have lately been steady at around $75 a barrel, up by about half since the beginning of this year. The last time oil prices were that high was in October 2018.
But the return to pre-pandemic production levels has stalled several times because of the shifting fortunes in the fight against Covid-19.
The alliance is pumping 5.8 million bpd less than it was before the pandemic struck.
The April 2022 deal on capping output now seems too close, and some members want to extend the period until December 2022 — and this is what Abu Dhabi objects to.
While the United Arab Emirates said it is prepared to extend the agreement if necessary, it wants to revise the reference level used to calculate the amount by which it must reduce output, Energy Minister Suhail Mohamed Al-Mazrouei told the WAM news agency.
The UAE’s 3.17 million bpd reference level, set in October 2018, was well below its effective potential output level of 3.8 million bpd in April 2020, just before the sharp cuts took effect. It was this issue that caused last week’s talks to break down.
The meetings, more used to big hitters Russia and Saudi Arabia setting the agenda, were confronted with the UAE’s refusal to toe the line.
“It is the whole group versus one country, which is sad to me,” Saudi Energy Minister Abdulaziz bin Salman told Bloomberg TV.
In a separate interview with Al-Arabiya television aired late on Sunday, Prince Abdulaziz called for “a bit of rationality and a bit of compromise” ahead of Monday’s meeting. Analyst Helima Croft, of RBC Capital Markets, went further.
“The prospect of a no-deal outcome — as well as a UAE Opec exit — has risen materially, even if it has not yet fully entered into firm base-case territory,” she wrote.
Prices for the key crude reference contracts were stable in early European trading on Monday.
Oil markets are accustomed to disputes between Opec’s members, as well as in the wider alliance — which includes Russia.
At the beginning of last year the group negotiated its way through a brief but intense spat between Russia and Saudi Arabia over oil prices, and disagreements slowed its reaction to the drop in demand at the beginning of the pandemic.
Published in Dawn, July 6th, 2021