Focus on decision on oil production policy with rising prices

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The Organization of Petroleum Exporting Countries (OPEC) logo at its headquarters.

Omar Marques | LightRakete | Getty Images

LONDON – OPEC and non-OPEC ministers ended the meeting on Friday without a resolution and will meet again on Monday on oil production policy, CNBC’s Brian Sullivan reported.

The Energy Alliance, often referred to as OPEC +, met on Friday afternoon via video conference to decide whether the production policy should remain unchanged or the supply should be increased further.

OPEC +, with the exception of the United Arab Emirates, agreed to ease the cuts and extend them until the end of next year, according to Reuters, citing an OPEC + source. The UAE said the extension is contingent on revising their base production, Reuters reported.

Oil prices moved on the news, rising slightly on Thursday before losing momentum on Friday as traders digested the impact. International Brent Crude Oil futures traded at $ 76.03 a barrel, up 0.2% for the session, while U.S. West Texas Intermediate Futures traded 7 cents lower at $ 75.16 a barrel on Friday.

The OPEC alliance has basically agreed to increase the supply by 400,000 barrels per day from August to December 2021 in order to meet the increasing demand, reported Reuters, citing unnamed OPEC + sources.

According to Reuters, OPEC Queen Saudi Arabia and non-OPEC leader Russia had also proposed extending the duration of the cuts until the end of 2022.

However, Reuters reported that the UAE rejected these plans on the grounds that OPEC + should change the baseline for cuts and effectively increase its production quota.

Rising tensions

Neil Atkinson, an independent oil analyst, told CNBC’s Squawk Box Europe on Friday that tensions between the United Arab Emirates and other OPEC + members “have been bubbling for some time”.

“The Abu Dhabi National Oil Company has invested in new capacity, taking a more active role in trade,” he said, adding that it may function more like an international oil company than a national oil company. In contrast to international oil companies, decisions made by national oil companies tend to be influenced by the state.

“They are looking to the future, they see a further increase in demand for oil in the medium term, they have installed more capacity and want to have a larger share of this market in the 2020s,” he added.

Analysts at risk advisory group Eurasia Group said they believe the oil producing group is still likely to reach an agreement.

“The UAE could negotiate, but it is unlikely that they will have the courage to risk it all until the end. They want to avoid sabotaging an OPEC + deal and possibly being held responsible for a surge in oil prices that will global inflation is increasing, “the analysts said Friday, noting that the UAE’s own relationships with Asian energy customers could suffer if prices continue to rise.

“Although the UAE’s withdrawal from OPEC + should definitely not be rejected, such a decision would be surprising. Such a move would jeopardize Abu Dhabi’s relationship with Riyadh, its broad positioning in the region and its ability to build long-term alliances. So a compromise seems the most likely outcome. “

Dominated by crude oil producers from the Middle East, OPEC + agreed massive cuts in crude oil production to prop up oil prices in 2020 when the coronavirus pandemic coincided with a historic shock in fuel demand.

Led by Saudi Arabia, a close ally of the UAE, OPEC + has since launched monthly meetings to guide production policies and has already announced plans to increase supply by 2.1 million barrels a day between May and July .

Analysts had expected the Energy Alliance to increase supply by around 500,000 barrels per day starting next month, slightly higher than the reported proposal to increase 400,000 barrels.

Oil prices

Oil prices have soared more than 45% since the start of the year in the first half of the year, aided by the introduction of Covid-19 vaccines, a gradual easing of lockdown measures and massive production cuts by OPEC +.

US investment banks on Wall Street see a lot of room for maneuver in the coming months.

The rosy outlook for oil prices comes as all three of the world’s top forecasting agencies – OPEC, the International Energy Agency, and the U.S. Energy Intelligence Agency – expect a demand-driven recovery to pick up in the second half of 2021.

However, the global spread of the Delta Covid-19 variant has heightened concerns about a setback in oil demand. Renewed lockdown measures and rising costs have already led to slower factory growth in China, for example.