OPEC Plus Agrees on Oil Production Increase, Ending Dispute With U.A.E.

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Major oil producers reached a deal on production increases on Sunday, as the United Arab Emirates and Saudi Arabia resolved a dispute that had blocked an agreement this month.

The pact clears the way for OPEC Plus, as the group is known, to begin pumping more oil beginning next month, a move that could help ease a potential squeeze in supplies as global economies continue gearing up after pandemic lockdowns.

Under the agreement, OPEC Plus will increase output each month by 400,000 barrels a day,beginning in August.

The arrangement gives the Emirates most of the increase in its production quota that it was seeking, although not until after next April. Other countries, including Kuwait, Iraq, Saudi Arabia and Russia, will also be granted increases in the baselines from which their production limits are calculated, according to OPEC’s statement.

The 23-member group also yielded to a Saudi request to extend the overall production agreement through the end of 2022.

The agreement ends a standoff between Saudi Arabia, the de facto leader of the cartel, and the Emirates, which has invested heavily in expanding its oil production and has chafed against the group’s limits on output.

The dispute, which held up plans to expand overall production levels, caused oil prices to spike earlier this month, briefly hitting six-year highs on July 6, and underscored concerns about rising gas prices and inflation in general in the United States and elsewhere.

The pact also appears to restore Saudi Arabia, the world’s largest oil producer, as the dominant influence over the group.

“We are here to stay,” Prince Abdulaziz bin Salman, the Saudi oil minister said during a news conference after the meeting. “What bonds us together is way beyond what you imagine.”

What matters about this agreement is not the production numbers — which can be changed by monthly reviews — but that the organization was able to reach a consensus under trying circumstances, said Bhushan Bahree, an executive director at IHS Markit, a research firm.

“The important thing is that they faced a problem, and they overcame it,” Mr. Bahree said.

Other tests, though, are likely to come as subsequent meetings present opportunities for negotiation. The dispute with the Emirates could be a harbinger of changes that may drive wedges between the different members of the group, which includes OPEC along with Russia and its allies. .

The environment that OPEC has long operated in is changing. The organization’s calculation has been that seeking higher prices by restraining production was a smart strategy because there would always be demand for the vast resources its members still have in the ground.

Climate change has upset that long-range outlook. The deadly floods in Europe this week are just the latest weather catastrophe prompting lawmakers to call for more stringent rules on greenhouse gas emissions. Some countries, who rely on fossil fuels as a major source of government revenue, may seek to turn their reserves into cash while they still can.

“This latest OPEC bust-up highlights important changes in oil marketing strategy that are starting to spread across the global oil patch,” said Jim Krane, a fellow at Rice University’s Baker Institute.

The United Arab Emirates, whose oil production is dominated by the emirate of Abu Dhabi, has for some time been moving in a direction likely to lead to differences with the rest of OPEC.

Abu Dhabi is investing heavily in its national oil company, the Abu Dhabi National Oil Company, bringing in international companies to explore and develop new resources and bolster activities like refining and the trading of oil products.

The leadership of Abu Dhabi increasingly saw the country’s quota of about 2.7 million barrels a day as both unfair and not in the national interest. The national oil company’s production capacity has already reached about 4 million barrels a day and is heading toward 5 million barrels a day.

Like other OPEC members, the United Arab Emirates leadership is also disgruntled about the changed dynamics in OPEC since 2016, when Saudi Arabia brought Russia in as a top associate in what has now become OPEC Plus. As happened earlier this month, important moves are often worked out between Riyadh and Moscow, leaving other members little choice but to come on board. This arrangement has grated on some members, particularly the Emirates, a neighbor and traditionally a close ally of the Saudis.

In early July, the Emirates’ oil officials made their displeasure clear during a series of OPEC Plus meetings. Suhail al Mazrouei, the U.A.E.’s oil minister, insisted that the country’s quota should be calculated from a higher baseline than the one set in April 2020, in an emergency deal at the beginning of the pandemic.

The Saudis balked, saying that a new quota for one member would lead to others demanding changes.

Evidently, both countries realized that at this time they are better off reaching a compromise….



Read More:OPEC Plus Agrees on Oil Production Increase, Ending Dispute With U.A.E.

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