OPEC+ has cancelled a meeting on oil production policy scheduled for Monday, highlighting irreconcilable differences between the UAE and major oil producers such as Saudi Arabia.
Monday’s meeting was scheduled to take place at 2 p.m. London time, but had not been held until two hours after the start of the talks, OPEC Secretary General Barkindo announced, adding that OPEC+ had failed to agree on a date for its next meeting.
The media quoted OPEC+ representatives as saying that after several days of intensive consultations, OPEC+ still failed to resolve differences between the two core OPEC members, Saudi Arabia and the UAE. Sources also said that the UAE’s position remains unchanged and the OPEC+ Joint Ministerial Monitoring Committee (JMCC) needs more time to consider the UAE’s position. The media believes that the immediate impact of the stalled talks is that OPEC+ will not increase production next month, in August.
International crude oil jumped intraday after news of OPEC+ cancelled talks, with Brent crude rising above $77 intraday for the first time since October 2018, extending intraday gains to more than 1%. U.S. WTI crude oil regained $76 intraday, also setting a new high in nearly three years and rising more than 1% intraday. Finally, Brent September crude oil futures closed up 1.30% at $77.16/barrel, with the main contract closing at $77 for the first time since October 29, 2018, following a rise above $76 on Friday to set a new closing high since late October 2018.
This Monday’s meeting came after OPEC+ decided to convene last Friday after the oil production decision remained inconclusive. OPEC+ on Friday could have adopted the recommendation of the JMMC, a ministerial advisory committee, to increase production by 400,000 barrels per day per month from August to December and extend the duration of the agreement to cut production until the end of next year. But the UAE refused to accept, demanding an upward revision of the production benchmark for that country’s cut, allowing it to increase its own production by 700,000 bpd.
As noted in an earlier Wall Street Journal article, after the deadlock was still not broken on Friday, both the UAE and Saudi Arabia’s newest statements stick to their respective positions, and relations between the two sides now appear to be strained and lacking communication.
The UAE said on Sunday that it supports plans to increase oil production from August, but suggested postponing the decision to extend the OPEC+ deal, saying that if an extension is needed, it would require a review of the crude baseline on which the cuts were based to ensure fairness to all parties. The UAE’s Energy Minister Suhail Al Mazrouei said bluntly that the current deal is “not a good deal” for the UAE and that “we know that the UAE is in the worst position in the deal” given its current production capacity.
Saudi Energy Minister Salman also said on Sunday that OPEC must extend production cuts and that “cutting production puts more people in their comfort zone”. While insisting that he and Al Mazrouei remain friends, Salman said he had not spoken to the UAE minister since last Friday.
It is worth mentioning that the UAE, which suddenly sang the opposite tune this time, has followed Saudi Arabia within OPEC for the past 40 years. A deterioration in Saudi-UAE relations could threaten OPEC’s ability to stabilize oil prices. Moreover, the media mentioned that industry sources said that the UAE’s top brass has been engaged in heated discussions on whether to withdraw from OPEC. A UAE exit from OPEC could trigger a massive production increase.
And Jeff Currie, head of commodities research at Goldman Sachs, said recently that the oil market now expects the OPEC+ agreement to implement production cuts until April next year, but without further extensions. currie argued that this would buy time for the UAE to urge a higher production baseline, and that the current market environment is probably the best in decades, and that it is unlikely that either OPEC+ party will now start a price war that The crisis is “highly unlikely” to degenerate into a repeat of last year’s price war, undermining this opportunity.
On Monday, the media pointed out that the so-called stalemate could actually change at any time, and OPEC+ could restart talks at any time. Crude oil has risen 50 percent this year and is heading for the $80 per barrel mark, and oil-consuming countries worried about rising inflation could put pressure on OPEC+.
On Monday, a White House spokesman said the U.S. was not a party to the talks but was “closely monitoring OPEC+ consultations and their impact on the global economic recovery in the wake of the new crown epidemic. (U.S.) administration officials have interacted with relevant governments to urge a compromise solution that would allow the proposed production increase to move forward.”
Javier Blas, Bloomberg’s chief energy correspondent, commented that it is only a matter of time before the UAE expands its oil supply, possibly next month, possibly next year, and possibly after April next year, and that the country is definitely going to raise its current production limit benchmark anyway. The risk of the entire OPEC+ alliance falling apart has clearly increased. For oil prices, this Monday’s result is very bullish, but will be very bearish into next year. This could be a short-term positive and a medium-term negative.