Oil Price: the UAE managed to elevate its baseline; production rises by 400,000 bpd

 

OPEC+ deal: 18 Sunday

The OPEC+ finally managed to overcome the weeks of uncertainty over the direction that the group is supposed to move in the post-pandemic world, on Sunday.

Hailing the agreement, Prince Abdulaziz bin Salman, the Saudi Energy Minister, said “consensus building is an art,” having reached the collective agreement.

The disagreement between the two Arab neighbours, the UAE and Saudi Arabia that spilled into the open shocked the nations beyond the OPEC+: they used to see eye to eye on many Middle Eastern issues; they are Sunni Muslim Arab nations; they were almost like inseparable twins.

They may have had their differences before as well. More often than not, the UAE and Saudi Arabia managed to settle them amicably behind the closed doors – the palace walls; the military involvement in Yemen, lifting the embargo against Qatar and starting diplomatic ties with Israel, to name but a few.

As a shadow of misplaced anxiety about the onset of a world-without-fossil fuels casts over the oil producers, an inevitable competition in diversifying their oil-dependent economies has broken out among the oil producers, while being stuck in the stampede of searching for alternatives for revenue generation.

Two critical moves by Saudi Arabia recently against its traditional – and loyal – ally show how the years of ‘brotherhood’ can disappear overnight when economic worries start to bite: Saudis banned construction companies from operating on its soil, unless the headquarters of them are based in the Kingdom; on top of that, Saudis banned the imports from the UAE, if the products in question come from the so-called free trade zones or Israel.

The UAE, at least on the surface, does not appear to be retaliating. It, however, insisted that the baseline for its crude oil production must be increased from the current 3.2 million bpd to 3.8 million, from which the OPEC+ production cuts are calculated.

With the hastily arranged OPEC+ meeting on Sunday, the group managed to reach the long-awaited agreement; with that, UAE, managed to raise the disputed baseline to 3.5 million bpd, not 3.8 million bpd that it demanded; Russia appeared to have helped bridging the gap of disagreement between the two countries.

The changes are going to take effect from May, 2022. Up until then, the OPEC+ agreed to increase the output by 400,000 bpd; the group hopes to get the output to the pre-pandemic level before the said date; the group still pumps 5.8 million less than what it used to be.

After May, 2022, the UAE is not the only beneficiary of the increased production quota: Kuwait, Iraq, Russia and Saudi Arabia are going to benefit from the deal too.

There is a lingering concern, though. The new administration of Iran is going to take office in early August and everyone hopes that the stalled talks on the JCPOA, 2015 Iranian nuclear deal, will resume in earnest.

The newly-elected president of Iran, who is branded as a pragmatist, will not be able to put his vision into practice without restoring its main revenue earner – crude oil. Iranian oil sector appears to be in full swing in the hope that the sanctions will be lifted sooner rather than later.

In Iran, meanwhile, the severe drought in many parts and frequent power outages have caused havoc; in some instances, the public anger has spilled out into the open, leading to mass protests.

If Iran managed to reach a deal with the West over the JCPOA, the former will undoubtedly demand an increased quota from the OPEC+ in order to compensate for the losses it suffered from 2018 to 2021 due to sanctions; on Sunday, Iranian oil minister implied that could be the case in the event of the sanctions being lifted.

If Iran gets its way, the markets are going to get a substantial increase in crude oil and the uneasy calm that the OPEC+ earned on Sunday could be in jeopardy again; a precipitous drop in the price of crude oil, in the end, is in nobody’s interest.

 

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