The latest round of negotiations among the OPEC+ group of oil-exporting countries has come to a halt after the UAE rejected ideas that would tie an increase in crude oil supply to an extension of an output accord.
Another round of OPEC+ country talks set for Monday has been canceled, according to reports, after key stakeholders failed to make any headway in resolving major concerns.
What’s the backstory?
In April 2020, the OPEC+ group of countries agreed to a two-year pact that included substantial cuts in crude production in response to a sharp drop in the price of oil as a result of the Covid-19 epidemic.
In April 2020, the price of Brent crude fell to an 18-year low of under $20 per barrel as global economic activity slowed as governments grappled with the pandemic. OPEC+ initially decreased production by around 10 million barrels per day or about 22% of OPEC+ nations’ reference production.
However, beginning in November 2020, the price of Brent crude began to rise steadily, reaching $76.5 per barrel — up from roughly $40 per barrel at the end of October — boosted by the continued expansion of vaccination programs around the world.
OPEC+, on the other hand, maintained reduced production levels despite crude oil prices nearing pre-Covid levels, with Saudi Arabia, in particular, announcing a further 1 million barrels per day drop in output for the February-to-April period, which helped push up prices even higher.
Developing economies, especially India, have chastised the OPEC+ organization for purposefully maintaining low supply levels in order to hike prices.
Dharmendra Pradhan, the petroleum minister, has even stated that the high price of crude oil is impeding the recovery of emerging countries following the pandemic.
When oil prices reached $64.5 per barrel in April, OPEC+ decided to progressively increase crude production, including a phased end to Saudi Arabia’s 1 million barrel per day production reduction by July.
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What is the issue?
According to the UAE’s official news agency, Emirates News Agency, the UAE agreed that increased crude oil production was needed starting in August, but did not agree to the OPEC Joint Ministerial Monitoring Committee’s (JMMC) condition that the two-year production agreement is extended for another six months.
The UAE government stated that attaching restrictions to an increase in August made “no sense,” stressing that the JMMC’s sole choice was to extend the current arrangement.
The reference output used to compute the total production distributed to each oil-exporting country is the UAE’s main criticism of the existing agreement.
The UAE stated that the present agreement’s baseline production level reference did not reflect the UAE’s production potential, resulting in the UAE receiving a reduced share of overall crude oil production.
The UAE stated that the baseline reference production levels were unjust and that it would be willing to prolong the agreement provided the baseline production levels were reviewed to ensure that all parties were treated equally.
