OPEC+ seeks consensus on oil output

Without a deal, the alliance could limit supply even as rising oil prices are slowing economic recovery

Published - July 04, 2021 02:19 am IST - LONDON/DUBAI/MOSCOW

FILE PHOTO: A 3D-printed oil pump jack is seen in front of displayed OPEC logo in this illustration picture, April 14, 2020. REUTERS/Dado Ruvic/File Photo

FILE PHOTO: A 3D-printed oil pump jack is seen in front of displayed OPEC logo in this illustration picture, April 14, 2020. REUTERS/Dado Ruvic/File Photo

OPEC+ will resume talks on Monday after failing to reach a deal on oil output policy for a second day running on Friday because the United Arab Emirates blocked some aspects of the pact.

The stand-off could delay plans to pump more oil through to the end of the year to cool oil prices that have soared to 2-1/2 year highs. ithout a deal, the alliance could keep tighter restraints on output with oil prices now trading around $75 a barrel, more than 40% up this year.

Fanning global inflation

Consumers want more crude to aid a global recovery from the COVID-19 pandemic.

The rise in oil prices is contributing to global inflation, slowing the economic recovery from the novel coronavirus crisis.

The UAE put the brakes on a deal that had been pushed by top producers Saudi Arabia and Russia to increase output by 2 million barrels per day (bpd) by the end of 2021 and extend remaining cuts to the end of 2022, instead of ending in April.

Responding to oil demand destruction caused by the COVID crisis, OPEC+ had agreed last year to cut output by almost 10 million bpd from May 2020, with plans to phase out the curbs by the end of April 2022. Cuts now stand at about 5.8 million bpd.

If UAE blocks any deal, the remaining cuts would likely stay in place. There is a slim chance the deal could fall apart and all countries could pump as much as they want.

Under another scenario, the group could agree to increase output to the end of 2021 but postpone discussion about extending the deal beyond April 2022. OPEC+ sources said UAE had made this proposal.

OPEC+ sources said the UAE complained that its baseline — the level from which any cuts are calculated — was originally set too low, an issue it raised before but was ready to tolerate if the deal ended in April 2022 but not if it went on longer.

The UAE has ambitious production plans, investing billions of dollars to boost capacity. The OPEC+ pact has left about 30% of UAE capacity idle, sources say.

Russia’s focus on shale

In the build up to the meeting this week, OPEC+ sources had said Russia was insisting on releasing more oil to the market as the rise in prices was encouraging the growth of rival U.S. shale output — which tends to need higher prices to be economic.

OPEC’s leader Saudi Arabia had taken a more cautious approach saying fewer barrels should be released given uncertainties that remained about the course of the pandemic,with virus variants causing new outbreaks in many countries.

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