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What’s Behind The New OPEC Agreement?

The OPEC+ group managed to come to an agreement on Sunday regarding the production cuts that would add another 400,000 barrels per day into the oil market starting in August, according to an OPEC press release, despite conflict among some members such as UAE, which was holding out for a higher baseline.

The group will add another 400,000 barrels per day to oil output in September and every month thereafter until production levels have been completely restored. If the production additions go to schedule, full production will be restored by September 2022, although the deal has officially been extended until December 2022. OPEC+ will still continue to meet on a monthly basis and OPEC+ will review the state of the market in December and could make changes to output levels if it deems this is necessary.

OPEC+’s 19th OPEC and non-OPEC ministerial meeting was announced on Saturday. The meeting was held on Sunday, and the agreement was quickly reached—despite a heated debate between UAE and Saudi Arabia regarding the baseline limit of 3.168 million bpd that was previously set for the UAE. While UAE held out for a higher baseline of 3.8 million bpd—the baseline being the basis for establishing each member’s production quotas—Saudi Arabia’s more cautious approach to production levels had stalled OPEC talks.

But a compromise was reached between Saudi Arabia and UAE last week, ultimately paving the way for an OPEC+ agreement to come together.

The ultimate result was an adjustment to baselines used in the calculations of the production adjustments for five members, including the UAE (3.5 million bpd), Iraq (4.803 million bpd), Kuwait (2.959 million bpd), and Saudi Arabia and Russia (11.5 million bpd each).

The 20th OPEC and non-OPEC Ministerial Meeting will be held on September 1, 2022.

By Julianne Geiger for Oilprice.com

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