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UAH-Saudi brinkmanship threatens Opec unit as oil prices rise

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Saudi-Emirate relations are so sour that neither side could agree on how Monday’s private discussions were concluded between OPEC members and allies.

People close to the United Arab Emirates said a formal meeting of oil ministers had been postponed. His Saudi counterparts claimed it had been canceled and accused the UAE of having torpedoed an agreement to raise production at a time when resurgent demand had already it has raised raw prices by 50 percent this year.

Brent, the international benchmark, reached a three-year high on Tuesday after disagreements between Saudi Arabia, the de facto leader of Opec, and the UAE, a close former co-operative partner, sparked a briefing war between the two fields.

The encounter has opened a rupture at the heart of Opec that threatens the ability of the cartel – and its partners in the Opec + alliance – to provide stability to the oil market and could also see the UAE, a member since 1967, leave the group.

There is a growing unanimity among Emirati officials surrounding de facto leader Sheikh Mohammed bin Zayed al-Nahyan that it might be in the UAE’s best interest to go it alone, people have reported on the situation.

“Discussions are very much going on – but quitting is still very much the nuclear option,” said one of the people. “There are a lot of steps to take until we get there.”

Under de facto leader Sheikh Mohammed bin Zayed al-Nahyan, the UAE wants to generate increased revenues from oil and petrochemical production to fund future diversification efforts © Bandar Algaloud / Courtesy of Saudi Royal Court / Handout

Retrieval from Opec – a thought once impossible – would allow him to EAU to reinforce its production at low cost within the framework of a production maximization unit, rather than operating at two-thirds of its capacity to meet the cartel’s production quotas.

Saudi Arabia and its allied leader in the 23rd member Opec + Group, Russia, had proposed to increase production by 400,000 barrels per day each month between August and December. But they had also pushed to extend the existing supply agreement – agreed at the height of the pandemic closures in April 2020 – beyond the April 2022 deadline.

The AUA claimed last week that, while supporting the proposed production increase, it wanted a guarantee – before any extension of the underlying supply agreement – that its production base on which the supply cuts will be raised from April 2022 to account for their higher production capacity.

The UAE has increased production capacity in recent years to approach 4m b / d and predicts a further increase to 5m b / d, in a plan led by Sultan Al Jaber, head of the Abu Dhabi National Oil Company. Dhabi, which he is interested in look for every opportunity to expand the country’s energy capacities. Under the current Opec + agreement, it is allowed to produce just over 2.7mb / d in July.

Pumping as much oil as possible is seen as the key to ensuring Abu DhabiThe post-oil future. “They want to spread the message that it’s about doing or dying,” said a UAE government consultant.

Extra production is planned for refineries and petrochemical plants in the city of Ruwais, part of Abu Dhabi’s plan to generate more value from the national emirate’s crude oil. Higher revenues will fund oil diversification plans in the economy.

For now, Riyadh has refused to flash back at the vision of the Emirates ’tightening and will seek to blame Abu Dhabi for rising prices.

A person familiar with Saudi Arabia’s oil policy said the UAE’s refusal to “engage positively” had had a missed opportunity to curb crude oil prices that were now ready to rise when more barrels are were released to the market that traders expected. “This meeting could be over in an hour on Thursday,” the person said.

The Borouge 3 petrochemical plant is one of several structures in Ruwais that could transform increased oil production in the UAE © Christophe Viseux / Bloomberg

The last time the Opec + alliance was subjected to this pressure was at the beginning of the pandemic when Saudi Arabia and Russia launched a price war following a dispute over how to manage it. supply policy in the face of the crisis.

Now, rather than a spate between long-term rival producers, the kingdom is struggling with a close neighbor who has become more assertive and less willing to deal with disagreements in private, threatening the fragile unity of the Opec + group.

“What we learn from this episode is that there is less patience for the kind of closed-door diplomacy that would have solved these problems in the past,” said Bill Farren-Price, director of research firm Enverus and former Opec watcher. .

“Cooler tests may prevail – but genius is out of the bottle. The prospect of a large Opec producer flying solo can’t be easily overlooked,” he added. “The impact of a schism like this on Opec’s credibility, to say nothing of Opec, is profound.”

Kristin Diwan, a former student resident at the Arab Institute of the Gulf States in Washington, said the UAE might not leave immediately, but the logic of its oil policy and strategic trajectory have suggested that the it would end.

“There’s a compromise that can be found in the short term, but I don’t see the Emiratis giving up a strategy that they’ve built on for at least half a decade,” he said. “Their entire oil transition depends on them using their resources faster.”

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