OPEC oil alliance at impasse between Saudi Arabia and UAE
DUBAI – The OPEC oil cartel led by Saudi Arabia and other allied producing countries resumed talks Monday amid a standoff with the United Arab Emirates over how much to raise production levels with demand still hampered by threats from new variants of the coronavirus.
The UAE on Sunday pushed back against a plan by the OPEC+
group, which includes non-OPEC producers like Russia, to extend a pact to cut
oil production beyond April 2022.
There are concerns that if an agreement among the 23
member-states cannot be reached, the alliance could break apart, triggering a
price war and huge swings in global oil prices at a time of uncertainty over
future demand for oil due to continued lockdowns in parts of the world and the
uneven distribution of vaccines worldwide.
Last year’s abrupt halt to travel and widespread lockdowns reduced
global demand for oil, driving down energy prices as unused barrels of oil
quickly filled up storage sites. The OPEC+ group agreed to a steep cut of some
9 million barrels per day to keep prices from collapsing further.
Saudi Arabia went further, voluntarily cutting even more of
its own production to keep prices from falling. In June, the kingdom produced
just under 9 million barrels per day, compared to more than 10 barrels a day
before the pandemic.
As economies began rebounding and vaccine distribution
picked up steam, the OPEC+ group increased production so that daily cuts
averaged around 6 million barrels per day. Currently, the OPEC+ alliance is
producing some 37 millions barrels per day compared to around 43 million
barrels per day in April of last year, at the start of the pandemic.
The Russian TASS news agency reported Friday that all
members of the OPEC+ Joint Ministerial Monitoring Committee — except the UAE —
supported a proposal to boost production by 400,000 barrels a day starting in August
and to extend the deal until the end of 2022. The 400,000 a day would be
increased each month through 2022.
The UAE's Energy Minister, Suhail al-Mazrouei, spoke to
multiple media outlets over the weekend, voicing his country's concerns and
lamenting that one third of the UAE's production has remained idle for two
years.
On Sunday, the UAE Energy Ministry issued a rare statement,
saying that while the country is willing to extend the current OPEC+ agreement,
if required, it wants a higher baseline production level of its own that
reflects the UAE's actual production capacity rather than what it said is an
outdated reference.
The UAE is currently producing around 2.7 million barrels
per day under the OPEC+ agreement, though it averaged around 3 million a day
between January 2019 and March 2020, according to Refinitiv, a financial market
data provider. Analysts suggest the country can easily produce up to 4 million
a day.
Saudi Energy Minister Prince Abdulaziz bin Salman told the
Al-Arabiya broadcaster late Sunday “a bit of rationality and a bit of
compromise” was needed. He added that in more than three decades of OPEC
meetings, he's “never seen such a demand” and that he is neither optimistic nor
pessimistic about Monday's resumption of talks.
Per Magnus Nysveen, head of analysis at Rystad Energy
research and consultancy firm, said for the UAE to get what it wants, Saudi
Arabia may need to make further cuts to its output.
“If the UAE were to have a higher quota going forward, it
would only be Saudi Arabia that can reduce production on their side,” he said,
explaining that the kingdom has done voluntary cuts before and could be willing
to concede in order to keep OPEC together.
Still, that could be a hard sell because both countries are
in need of oil revenue to buoy their economies, which have been rocked by the
pandemic and lower oil prices.
There are political differences between the UAE and Saudi
Arabia, as well, to consider.
Saudi Arabia and the UAE were closely aligned in past years,
mirroring the budding relationship that had developed between Abu Dhabi Crown
Prince Mohammed bin Zayed and Saudi Crown Prince Mohammed bin Salman. So close
were the two de-facto leaders that the two countries launched into a war in
Yemen together and cut ties with neighboring Qatar together. In late 2017, the
two nations announced a new partnership to coordinate in all military,
political, economic, trade and cultural fields.
But in recent years, national interests have diverged. The
UAE dramatically downsized its footprint in the Saudi-led coalition battling
Iranian-backed Houthis in Yemen. The Saudis moved to rapidly restore diplomatic
ties with Qatar earlier this year, but the UAE has yet to restore full
diplomatic relations and continues to block Qatar-based news sites like Al
Jazeera.
Meanwhile, Saudi Arabia on Sunday suspended all flights to
and from the UAE, lumping it with Ethiopia, Vietnam and Afghanistan as
coronavirus risks. The kingdom has expressed concern over the fast-spreading
delta variant, which has appeared in the United Arab Emirates.
In recent days, the kingdom changed its law for goods
imported from Gulf Arab countries to exclude from a preferential tariff
agreement imported goods produced by any Israeli-owned companies, as well as
goods with any components produced in Israel. Such products have proliferated
in the UAE following the country’s normalization of ties with Israel.
In February, Saudi Arabia warned companies that if their
regional offices are not moved to the kingdom by 2024, their contracts with the
Saudi government and its institutions would be suspended. The decision is seen
as a direct call to companies with regional offices in the Western-friendly UAE
financial hub of Dubai to pick up and relocate to Riyadh.
Comments
Post a Comment