The odds of an OPEC+ meeting this week look increasingly unlikely as the group has failed to make progress in resolving the differences between key OPEC members Saudi Arabia and the United Arab Emirates (UAE), which resulted in a failure to decide future production levels last week, sources at OPEC+ told Reuters on Monday.
The UAE blocked a deal on OPEC+ raising oil production from August, making any agreements contingent on revising the “unfairly low” Emirati baseline from 2018.
Despite mediation, consultations, and side talks in the first weekend of July—after two days of ‘no deal’ outcome of meetings—OPEC+ failed a third time on July 5, called off the OPEC+ meeting, and said it hadn’t decided yet when the next meeting would be held.
After initially rising on the news that as-is, no production would be added from OPEC+ in August, the oil market started to digest later in the week the possibility that the future of the entire pact could be thrown into doubt should the UAE and Saudi Arabia fail to find some common ground.
The Biden Administration also urged the OPEC+ group to settle the ongoing dispute about baseline production levels and open the taps, as it was planned, and meet growing global oil demand.
According to Reuters’ sources, Russia continues to try to bridge the differences between Saudi Arabia and the UAE with behind-closed-doors talks, without success so far.
It is not expected the OPEC+ alliance – in which Russia leads the group of non-OPEC producers – to hold a meeting this week, a Russian source told Reuters today.
“We are closely monitoring the OPEC Plus negotiations and their impact on the global economic recovery from the COVID-19 pandemic,” White House Press Secretary Jen Psaki said last week.
“[W]e’re not a party to these talks, but, over the weekend and into this week, we’ve had a number of high-level conversations with officials in Saudi Arabia, the UAE, and other relevant partners,” she added.
By Tsvetana Paraskova for Oilprice.com
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A continuation of the impasse will deprive the market of 2 million barrels of increased OPEC+ production leading to a further tightening of the market. And if OPEC+ does eventually reach a deal, prices will equally rise because this will show its great confidence in the fundamentals of the global oil market. Either way, OPEC+ and prices win.
The market is aware that even if the UAE decides to open the taps, the maximum it could bring to the market is no more than 500,000 barrels a day (b/d). The global economy is capable of absorbing this volume with hardly any impact on prices. However, the UAE will only do that if it is planning to leave OPEC which I personally discount. Were it to do so is tantamount to an open warfare with Saudi Arabia which it can’t win.
The public spat isn’t about oil. It is about who will be the pre-eminent power in the Gulf region. If this is the case, then both have a role to play. By recognizing Saudi Arabia as the pre-eminent power in the Gulf region, Saudi Arabia will reciprocate by accepting the UAE as the undisputed business hub of the Gulf, a role the UAE particularly Dubai has exercised and perfected long before oil was discovered and therein lies the solution to this spat: a division of power.
Moreover, this division of power could eventually be adopted as a model for a rapprochement between Iran and Saudi Arabia where both could share power as the two regional powers in the Gulf region.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London