Ending a two-week feud between Saudi Arabia and the United Arab Emirates, OPEC and its allies agreed to gradually add extra oil supply to the market.
The unusually public dispute, which put the cartel’s unity to the test, was settled through a classic compromise, with Riyadh meeting Abu Dhabi halfway in its demand for a more liberal output cap.
After the discussion, Saudi Energy Minister Prince Abdulaziz bin Salman informed reporters that reaching a consensus is an art. The agreement demonstrates the members’ strong relationships and proves that “OPEC+ is here to stay.”
OPEC and its partners decided to gradually increase oil supply to the market. Starting in August, the cartel would increase output by 400,000 barrels per day, continuing until all of its suspended output is restored.
According to a statement from the organization, the agreement will offer the UAE and many other countries higher baselines against which their output cuts will be judged, beginning in May 2022. The UAE’s threshold was raised to 3.5 million barrels per day, down from the initial demand of 3.8 million but higher than the prior baseline of 3.17 million.
The cease-fire between the two long-time allies will alleviate an impending supply shortage and lessen the likelihood of an inflationary surge in oil prices. It also puts an end to a diplomatic dispute that had markets worried, as the fight between the two long-time allies threatened to destabilize the broader agreement between the Organization of Petroleum Exporting Countries and its allies, which had been supporting crude price recovery.
For the oil market, the comprehensive deal has several implications. It provides customers a better idea of how swiftly OPEC+ will recover the 5.8 million barrels per day oil output it has been holding back since adopting severe cuts last year during the pandemic’s early phases.
When the baseline modifications go into effect next year, Prince Abdulaziz says they won’t change the pace of the 400,000 barrel-a-day monthly output increases. He said the committee will continue to meet every month, with a market assessment in December, and that the calendar might be adjusted if necessary.
According to Bill Farren-Price, a director at research firm Enverus, the monthly meetings and the December review will tell that everything is amendable. Oil bulls should take this as a good sign because OPEC+ supply management is still in place, he added.
The agreement also settles long-standing issues that have created OPEC+ difficulties since late 2020. The UAE vetoed a deal earlier this month, claiming that the way its quota was calculated was unfair because it didn’t account for the country’s costly industrial expansion.
The spat was unusually acrimonious, and the difficulties extend beyond oil diplomacy, as Abu Dhabi and Riyadh’s economic rivalry grows. Ministers from both countries used media interviews to bolster their cases, bringing up memories of the upcoming Saudi-Russian pricing battle in 2020, as well as the UAE’s previous threats to leave the cartel.
Both countries stressed the strength and warmth of their relationship after a successful arrangement was reached. After the meeting, Energy Minister Suhail Al-Mazrouei told reporters, “The UAE is committed to this group and will always work with it.” He praised Saudi Arabia and Russia for keeping OPEC+ together and creating a productive dialogue that allowed for a deal to be reached.
