UAE officials have reportedly privately floated the surprising idea that the oil producer is even considering withdrawing from the OPEC+ alliance, exacerbating tensions with oil allies Saudi Arabia and Russia.
The move is unusual because the UAE has long avoided open conflict, preferring to settle disputes quietly behind the scenes. It’s unclear whether the warning is a means of forcing negotiations over production or represents a genuine policy debate.
Relations between the UAE and OPEC+ have been strained since August, at first with stern warnings from Saudi Arabia about the UAE’s overproduction of oil, but later, as the UAE has gradually cut production, it has become increasingly unhappy with the OPEC+ production cut agreement, which it believes is unfair in terms of quotas.
Specifically, in August of this year, the UAE’s average crude oil production was 2.693 million barrels per day (bpd) due to a surge in summer electricity demand, about 100,000 bpd higher than the quota set by OPEC+, making Saudi Arabia, the de facto head of OPEC+, particularly unhappy.
After the UAE grossly exceeded its production quota, it pledged to compensate for the excess oil production and significantly cut production in September. And according to the latest statement from the UAE’s energy minister, the UAE’s implementation of the October production cut agreement has reached 126%.
In addition, according to Energy Intel Corp.
“The UAE has not yet officially announced that it is leaving OPEC+, or even considering leaving the organization, but according to sources, the UAE is in internal discussions with OPEC+ about cooperation.”
This means that the UAE may currently simply be trying to get OPEC to give it greater benefits in terms of reduced production quotas, which may also be the case, and after the news of the UAE’s departure from OPEC+ was widely rumored, UAE Energy Minister Al Mazroui finally came out and stated.
“As a trusted and long-standing member of OPEC, we have been open and transparent about all decisions and strategies to support the organization.”
Mazroui also made a point of stating that the UAE has been a loyal member of OPEC and has demonstrated this commitment by abiding by the current oil production cut agreement with OPEC. But behind this bluff lies something that both sides know all too well: any discord within the current OPEC+ organization has the potential to hit an already precarious oil market.
Since the outbreak of the disease this year, OPEC+ members have suffered tremendous losses. Because most OPEC+ member countries have long relied heavily on oil revenues for their budgets, they have faced painful production cuts as oil revenues have declined due to lower oil prices, and oil prices have failed to rebound to the levels that most OPEC+ members expected, leaving many members weighing whether to remain in the organization.
Despite the internal disputes, OPEC+ needs to continue to balance the oil market. On Tuesday, OPEC+ held a meeting of its ministerial oversight committee to discuss a three- to six-month postponement of the easing of production cuts originally scheduled for January of next year, but no decision was made. At the end of Tuesday’s meeting, the Joint Supervisory Committee issued a statement saying.
“All participating countries must remain vigilant, proactive, and ready to act on market requirements if necessary.”
So far, Saudi Arabia and Russia have remained committed to the production cut agreement, with Saudi Energy Minister Abdulaziz bin Salman saying that OPEC+ must be highly consistent in its implementation rate and be ready to act on market demands. Russian Deputy Prime Minister Novak, for his part, said that OPEC+ must continue to show adherence to the production cut agreement in an environment of pre-winter uncertainty.
In terms of the attitudes of the UAE and Saudi Arabia, while both sides have indicated that the oil market needs more support and are prepared to support a delay in increasing production, UAE Energy Minister Al Mazroui appeared to be more cautious, noting that all members should first fulfill their full oil production cut commitments before agreeing to change or extend existing agreements.
OPEC+ will meet from November 30 to December 1 to make a final decision on issues surrounding crude oil supply. Commerzbank expects that.
“OPEC+ will have no choice but to maintain current production levels in the first half of next year and in the first half of 2021, given that demand is unlikely to recover soon.”
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