Saudi Arabia and the United Arab Emirates (UAE) have resolved their nearly two-week-long standoff over baseline production levels that was blocking a unanimous OPEC+ deal on oil supply, a delegate from the OPEC+ group told Reuters on Wednesday.
Under the compromise, the UAE will see its baseline production level lifted to 3.65 million barrels per day (bpd) when the current pact expires in April 2022, according to the source. The current baseline for the UAE was around 3.17 million bpd.
Earlier this month, 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. The UAE was insisting on a higher baseline from which to calculate its quotas because the 2018 figure hadn’t reflected the country’s expanded production capacity. The UAE has ambitions to raise its oil production capacity to 5 million bpd by 2030, from around 4 million bpd now.
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.
Now sources tell Reuters and Bloomberg that a compromise agreement has been reached. The UAE will back the Saudi proposal from the early July meetings that the OPEC+ pact be extended past April 2022 into December 2022, a delegate told Bloomberg today. Related: China Oil Imports Fall To Lowest In 2021
A new date for OPEC and OPEC+ meetings will be set soon, the delegate said.
After news of the compromise broke, oil prices traded slightly down early on Wednesday before the EIA weekly inventory report.
A compromise between two of OPEC’s key members, Saudi Arabia and the UAE, and within the wider OPEC+ group would mean that the alliance could move to add more oil supply from August through December this year to meet the rebound in global oil demand and prevent a super-tight market and high oil prices that could slow economic and oil demand growth.
The compromise also removes a key uncertainty hanging over the market about the future of the OPEC+ pact and the possibility of a new oil price war.
By Tsvetana Paraskova for Oilprice.com
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It was inevitable that the impasse at OPEC+ be resolved since it removes any uncertainty from the global oil market and enables the organization to increase its production by 400,000 barrels a day (b/d) from August to the end of 2021.
The UAE benefits also by a lifting of its baseline level from 3.17 million barrels a day (mbd) currently to 3.65 mbd from April 2022 onwards. This, however, opens the door for Iraq to demand a lifting of its baseline from 3.75 mbd currently to 5 mbd followed by similar demands from Iran, Libya, Nigeria and Kuwait.
Moreover, the resolution of the impasse and the increase in OPEC+ production are a vote of confidence in the strong fundamentals of the global oil market.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London