Oil prices have jumped to their highest level in three years after Opec and its allies abandoned a decision on growing oil production, as Saudi Arabia, Russia and the UAE have struggled to reach a compromise.
Opec + oil ministers were due to meet Monday failure to reach an agreement at the end of last week, with the UAE failing on a supply target which it believes is too low and which underestimates its productive capacity.
But with high-level bilateral discussions unable to break the deadlock and find the necessary unanimity of opinion before the scheduled start of the formal meeting, the virtual meeting was canceled.
The meeting was “canceled,” Mohammed Barkindo, OPEC’s secretary general, told ministers. “The date of the next meeting will be decided in due course.”
A person familiar with Saudi Arabia’s policy said the UAE’s position put a deal out of reach and now prices are likely to rise.
“We missed a good opportunity to help the market alleviate a temporary shortage,” he said. «Iddi [UAE] now we need to take the heat from higher oil prices
Brent oil, the international benchmark, climbed on the news to $ 77.09 a barrel, gaining one percent to reach its highest level since 2018. The U.S. benchmark West Texas Intermediate is gone at $ 76.20 a barrel.
“The postponement of the Opec + meeting brings the market closer to August with no extra barrels from the alliance, which is why oil prices have jumped immediately on the news,” Louise Dickson told Rystad Energy consultancy .
Riyadh and Moscow have made a proposal to increase production by 400,000 barrels per day each month from August to December and to extend the Opec + supply agreement, agreed last year, beyond the deadline set for the end of April 2022.
While the UAE says it supports production growth, it has demanded that its own production base – from which supply sizes are calculated – factor into its higher production capacities and be reviewed before accepting extend the agreement.
People familiar with the UAE’s position said that Saudi Arabia and Russia needed more time to discuss Abu Dhabi’s position, which remains unchanged.
“There is no postponement,” said a person familiar with the Saudi and Russian position. “The UAE has blocked the decision, so the meeting is canceled. Current production levels continue as they are.”
Oil prices have risen 50 percent since the beginning of this year as demand picks up from the bottom of the pandemic, with vaccination programs allowing wealthy countries to begin to reopen.
Opec + reduced oil production by almost 10m per barrel per day last year, almost 10 per cent from pre-pandemic demand, when consumption fell, and was only slowly adding supplies to the market. in recent months. The current cuts are just under 6m b / d.
Analysts said a solution to the UAE’s complaint on its groundbreaking basis is complicated by the fact that it could involve having to re-examine other country targets, which could leave some of the largest producers – including Russia – with a lower share.
The stand-off exposed increasing tensions between Saudi Arabia and the UAE, traditionally close allies in both Gulf policy and OPEC. The UAE has invested heavily in growing its oil production capacity in recent years.
Some analysts have warned that tensions in the Opec + group could eventually lead to much more supply if the underlying agreement is dissolved, leaving producers without production restrictions.
Last year Saudi Arabia sharply increased production at the start of the pandemic after Russia refused to unite initially in supply cuts, exacerbating falling prices when closures and travel restrictions began. to curb demand.
The agreement to cut production last April was partially mediated by US President Donald Trump, who called for a halt to the price war that was hammering the U.S. shale oil industry.
Last week the Biden administration said it was concerned about the extension of rising oil prices in recent months, a move that analysts saw as a signal to allies in the Gulf including Saudi Arabia and the UAE who would like to see higher production cool the rally.