The rift in the Organization of the Petroleum Exporting Countries (OPEC) raises questions about what the future of this energy alliance will look like when internal unity is lost.
|Abqaiq Refinery of Saudi Aramco National Oil Corporation (Saudi Arabia). Photo: AFP|
UAE wants to escape the shadow of Saudi Arabia
OPEC fell into crisis after a heated dispute between Saudi Arabia (Saudi Arabia) and the United Arab Emirates (UAE) over a proposal to ease production.
After leaving empty-handed at last weekend’s meeting, OPEC and its non-OPEC partners (referred to as OPEC+) abruptly abandoned plans to reconvene the meeting on July 5. The alliance also did not set a schedule for the next meeting.
This means that no agreement has been reached on increasing crude oil production in the period after the end of July. This move by OPEC+ caused the oil market to stagnate despite the fact that global fuel demand has been partially recovered from the Covid-19 pandemic.
“OPEC+ is experiencing its most severe crisis since the worst oil price war between Saudi Arabia and Russia,” said Helima Croft, global head of commodity strategy analysis at investment bank RBC Capital Markets. last year”.
“Informal negotiations are said to be continuing, but the question is whether the UAE’s commitment to remaining in OPEC will likely increase in the coming days,” she said. Helima Croft stated.
This female expert assessed, the dispute between the UAE and Saudi Arabia is not simply about oil policy, because Abu Dhabi “seems to intend to get rid of the shadow of Saudi Arabia and chart its own direction in the future.” global issues”.
Capitalized by Middle Eastern crude-producing countries, OPEC+ previously agreed to large cuts of crude oil by 2020 in an effort to save oil prices from plummeting due to oil demand in a free fall due to the Covid-19 pandemic. Since the pandemic hit, OPEC+ has decided to meet every month to decide on output policy.
Solidarity has “disappeared”
Uncertainty occurred after OPEC + on July 2 voted on a proposal to increase oil production by about 2 million barrels per day between August and the end of the year. The union also proposed extending the remaining production cuts until the end of 2022.
However, these plans were rejected by the UAE, which wanted a higher output base to stimulate more domestic oil production.
Tamas Varga, oil analyst at oil brokerage PVM Oil Associates commented: “The results [ra về tay không] of the meeting re-enacts the oil supply and demand landscape in the near future and even the distant future”.
The rare public confrontation between the UAE and Saudi Arabia, where the energy ministers of both countries participated in a media debate over the weekend, made their point.
“For us, it’s not a good deal,” UAE Energy and Infrastructure Minister Suhail Al Mazrouei told CNBC. He stressed that the UAE is willing to support an increase in oil supply in the short term, but it wants better terms to last until 2022.
Speaking on state television Al Arabiya on July 4, Saudi Energy Minister Abdulaziz bin Salman called for “compromise and rationality” to reach an agreement on July 5.
Meanwhile, a White House spokesman said on July 5 that the administration of US President Joe Biden was pushing for a “compromised solution”. The United States is not a member of OPEC, but has been closely watching the recent round of talks because the alliance has a big impact on the crude oil market next year.
Commenting on the delayed OPEC+ meeting without reaching an agreement on July 5, John Kilduff, founding partner of investment consulting firm Again Capital said: “The solidarity of OPEC today has evaporate”.
“The pandemic has pulled them together and now the post-pandemic is tearing them apart. The UAE refuses to ease production and they want their output baseline raised. They want to be able to produce more. “, said Mr. John Kilduff.
As expected, world oil prices surged when OPEC+ failed to reach an agreement to ease production. Oil prices climbed to a three-year high with Brent crude futures up 0.6 per cent on the morning of July 6 and trading at $77.65 per barrel, while US Brent crude futures spiked 2% and reached $76.62/barrel.
Oil prices have surged more than 45% in the first half of this year thanks to 3 factors, including efforts to implement Covid-19 vaccination programs by countries, the gradual easing of epidemic prevention measures, and large cuts of crude oil production by OPEC+.
Samuel Burman, commodity economist at Capital Economics, said OPEC is likely to increase oil production beyond its quota next month as member countries “seek to capitalize” on the benefits of higher oil prices.
In addition to the rift between the UAE and Saudi Arabia, Mr. Samuel Burman said that Abu Dhabi was probably “a bit frustrated” that Russia had not complied with OPEC production quotas. The expert said that Russia – which leads the group of non-OPEC partners – has not offered any offsetting cuts and is currently overproducing by about 100,000 barrels of oil a day.
“We think this controversy involving the UAE increases the likelihood of the entire deal falling apart, which would obviously pose a negative risk to our near-term oil price forecast,” the expert said. assessment by Capital Economics.