Friday night’s heavy non-farm payrolls announcement triggered dramatic volatility in the gold market. Meanwhile, oil market investors are keeping a close eye on a meeting.
On Friday at 21:00, the OPEC and non-OPEC oil producers ministerial oversight committee met; then at 22:30, the 18th OPEC and non-OPEC oil producers ministerial meeting was held. This is a “delayed” meeting.
First, OPEC+ announced that the Joint Ministerial Monitoring Committee (JMMC) meeting was postponed from Wednesday to Thursday because of the conflict between Saudi Arabia and Russia. Then on Thursday, just as sources revealed that OPEC+ was close to reaching an agreement to increase production by 400,000 bpd and maintain it until 2022, a last-minute UAE came out of the woodwork, voicing its last-minute opposition to the production increase and demanding that OPEC+ boost the country’s baseline production used to calculate the cut in exchange for a larger production increase.
Come Friday, ahead of the JMMC meeting, OPEC representatives revealed that OPEC+ talks have not yet managed to resolve the impasse.
According to RIA Novosti, the majority of OPEC+ supervisory committee members do not oppose the UAE’s position to change its base production level, and even, several countries, including the UAE, have suggested modifying the base production level for calculating production cuts. Apparently, the divisions within OPEC+ have now widened. The source said.
“In fact, most members of the committee support the UAE’s position. Relaxing the extension of the production cut agreement means that each member has the right to modify the quota.”
He also confirmed that the UAE does not oppose the extension of the agreement, but only asks for a modification of its basic level. The source also noted that some countries such as Azerbaijan, Kuwait, Kazakhstan and Nigeria had seen modifications to their base production levels and did not affect the operation of the agreement.
According to a participant at the OPEC+ meeting, the UAE is ready to accept keeping August production unchanged if a new deal cannot be reached. After the UAE’s earlier opposition to the preliminary agreement, OPEC+ was at odds over August-December production levels and whether to extend the supply agreement into the second half of 2022; if no agreement is reached, the default scenario is that there will be no production increase in August.
After the news was announced, the U.S. and cloth oil rose and then fell, with sharp short-term shocks.
Analysis points out that if the issue is not resolved on Friday, the market may not get the expected additional crude oil supply, which will squeeze the already tight market, leading to the risk of further price increases. If OPEC+ fails to reach a compromise, the result could be an extension of current production into August or beyond. Javier Blas, an analyst for foreign media, noted.
“If the gap cannot be bridged, the existing OPEC+ production cut agreement will continue with a maximum of 5.8 million barrels per day until April 2022 – an outcome that no one seems to want.”
Moreover, as Golden 10 reported earlier, this stalemate has also damaged OPEC+’s newly rebuilt reputation, sparking another damaging internal dispute, bearing in mind that just 15 months ago, the Saudi-Russian price war had triggered a crude market crash.
And this is not the first time the UAE has shown its ambitions. Late last year, UAE oil minister Abu Dhabi even floated the idea of leaving OPEC because it desperately needs to boost production and the country has invested heavily in new capacity since the oil price collapse. The UAE argues the change is necessary because under the current terms of the OPEC+ agreement, it is cutting production more sharply than other members on a pro rata basis.
Neil Quilliam, associate fellow of the Middle East and North Africa program at the Chatham House think tank, said.
“Clearly, the UAE is taking a hard line and has expressed its frustration with the magnitude of the previous massive production cuts. This time the UAE may even derail the negotiations, and future negotiations are likely to be more intense.”
However, while the rift is already evident, Fitch’s Dmitry Malinchenko noted that a good sign for now is that.
“Every oil-producing country now understands that it should increase production to avoid excessive shortages and an unhealthy rise in crude prices.”
But on the other hand.
“With demand not yet recovered and the risk of more blockades due to sudden viral changes still present, it is dangerous to let go of production increases now and hopefully OPEC+ members will be able to reach a compromise at Friday’s meeting.”
Foreign media reported that OPEC has raised oil production to the most in a year last month as demand for crude surged, with a Bloomberg survey showing that OPEC+’s increased by 855,000 barrels per barrel in June to 26.47 million barrels per day, more than half of which came from Saudi Arabia. Even countries such as Iran, or countries in economic and industrial crisis such as Venezuela, have also increased production in June.