OPEC+ meeting on Monday: will the UAE get its way?

The JMMC, Joint Ministerial Monitoring Committee, meeting of the OPEC+ that ended inconclusively on Friday has added yet another anxiety to the beleaguered oil sector, when it can least afford to take the additional burden upon itself.

The issue has arisen from the fact that the UAE, United Arab Emirates, wants to change the baseline from which the cartel’s production cuts are calculated.

The UAE has been arguing about that being very low – 3.17 million bpd for the Emirates; it wants it to be at 3.84 million bpd. Some of the members, most probably those at the highly influential end, do not appear to be agreeing with that.

A deal could have been struck, if members agreed not to extend the production cuts that came in the aftermath of the pandemic beyond April, 2022.

Since the members could not compromise on that either, there was no common agreement by Friday evening and the talks are going to resume on Monday; there is no guarantee that the issue will be resolved next week, though.

If it is not resolved on Monday, it is a serious fissure in the OPEC+ that always used to come out during troubling times as a unified front. The nature of a fissure, however, is that could heal by itself or can grow into something far bigger and more serious, leaving the organisation on a damaging hinge – at the mercy of rapidly-changing global political currents.

As far as the OPEC+ is concerned, on one hand, the rise in crude oil price has put the producers under tremendous pressure, perhaps as never before. On the other hand, they have to balance the books, having suffered for years owing to falling prices, when the main form of revenue came from the same commodity.

On top of that, the producers have been cornered and singled out by the environmental movements for polluting the atmosphere by selling fossil fuel in ever-increasing quantities, despite that being in direct proportion to the universal demand from the world.

The OPEC+ that accounts for over 50% of global oil supply was dealt a severe blow by the Coronavirus pandemic: the sale of oil plummeted along with the price; on April 20, 2020, the price of crude oil even went negative for the first time ever in its history and for months the price remained so low, leaving the producers in a destructive loop.

The countries that could afford extra storage capacity did cash in on the situation by buying oil by the truckload at rock-bottom prices, a spectacle that the beleaguered producers could only watch from the vantage point of despair and helplessness.

Although the price of crude oil made a relative recovery before the end of 2020, only a handful of producers could breathe a sigh of relief, because the cost of production has never been a level playing field.

In 2021, the price of crude oil has risen by over 50%. The demand in the US and Europe is reaching the pre-pandemic level. In Asia, one of the fastest growing regions in the world, however, the new variants of the Coronavirus is causing mayhem again. Therefore, the OPEC+, prefers cautious approach to substantial increase in daily production; Saudi Arabia has been maintaining this position for months.

There are, however, nations which want to sell more oil to compensate for the past losses, despite being constrained by the rigid guidelines of the OPEC+, often brought about by the blessings of the more influential players of the organisation. This must have been an irritant for the weaker nations.

The ‘rebellious’ move by the UAE shows the frustration by some member of the OPEC+ when they cannot sell enough. Most of these countries, if not all, have been expanding their production capacities not to store in silos, but to sell and earn revenue. They are fully aware of the potential glut in the event of an over-supply.

If the sanctions against Iran are lifted, Iran may trigger off another ‘rebellion’ – a more serious one - by insisting on having a larger quota on the grounds of compensating for what it lost due to sanctions during the past three years.

These are the very challenges that the OPEC+ is going to face in the near future. If they are not tackled skilfully, the very pillars that the organisation was built on may see more fissures, which could potentially develop into irreparable cracks.