Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman Al-Saud speaks during an emergency virtual meeting of OPEC and non-OPEC countries following the coronavirus disease (COVID-19) outbreak in Riyadh, Saudi Arabia, on 9th 2020.
Saudi Press Agency | Reuters
LONDON – Oil producing group OPEC will resume talks with non-OPEC partners on Monday to broker a deal on crude oil production after the group unexpectedly failed to reach an agreement last week.
The Energy Alliance, often referred to as OPEC +, voted on Friday on a proposal to increase oil production between August and the end of the year by around 2 million barrels per day at monthly rates of 400,000 barrels per day. She also suggested extending the remaining production cuts until the end of 2022.
The UAE turned down those plans, however, blocking an agreement to keep oil markets pending over the weekend for the second year in a row.
“It wasn’t a good deal for us,” UAE Energy and Infrastructure Minister Suhail Al Mazrouei told CNBC’s Hadley Gamble on Sunday. He added that while the UAE was ready to support a short-term increase in oil supplies, it wanted better conditions through 2022.
In a conversation with the Saudi television broadcaster Al Arabiya, Saudi Arabia’s energy minister, Abdulaziz bin Salman, called for “compromise and rationality” on Sunday in order to reach an agreement on Monday, Reuters reported.
Dominated by crude oil producers from the Middle East, OPEC + agreed massive cuts in crude oil production to prop up oil prices in 2020 when the coronavirus pandemic coincided with a historic shock in fuel demand.
Under the leadership of Saudi Arabia, a close ally of the UAE, OPEC + has since initiated monthly meetings to steer production policy.
It has sparked a rare public confrontation between the United Arab Emirates and its longtime regional ally Saudi Arabia, the de facto leader of OPEC. The dispute comes as energy market participants eagerly await the political direction likely to shape crude oil markets into next year.
OPEC + will meet again via video conference on Monday from 2 p.m. London time.
“The UAE stands firm in its refusal to give in and insists that using the October 2018 production benchmark is fundamentally unfair. As a result, the prospect of a no-deal outcome – as well as an exit of the UAE-OPEC – has increased significantly, even if this is not the case. “Still fully entered into solid base-case territory,” said Helima Croft , Head of Global Commodities Strategy at RBC Capital Markets, in a research note.
“Of course, the monthly meeting structure means in practice that decisions can be quickly reversed and no permanent state is a production scenario in itself that could lead to a reversal of this year’s oil price rally.”
Croft said Monday’s meeting was unlikely to end in disarray for a third day, but admitted that the prospect could not be dismissed. “Sure it’s not a black swan scenario,” she added.
Beginning of the end for the bigger business?
Prior to the talks, international benchmark Brent crude oil futures were trading at $ 76.44 a barrel, up about 0.3% for the session, while U.S. West Texas intermediate futures were trading at $ 75.35 , about 0.25% higher.
Oil prices rose more than 45% in the first half of the year, aided by the introduction of Covid-19 vaccines, a gradual easing of lockdown measures, and massive OPEC + production cuts.
Analysts had expected the Energieallianz to increase supply by around 500,000 barrels per day from next month.
Hence, ING’s energy strategists said Monday that an increase of around 400,000 barrels a day proposed by OPEC + would likely support prices.
“Failure to reach an agreement can give the market a brief upward trend, with reports that if OPEC + fails to reach an agreement, production would remain unchanged,” they added.
“However, realistically it could also signal the beginning of the end of the larger deal, and with it the risk that members will begin to ramp up production.”