The United Arab Emirates, the group’s fourth-largest producer, argued against a deal proposed by Saudi Arabia and Russia to extend quota limits until the end of next year instead of ending them in April as originally planned.
United Arab Emirates The other 22 agreed with OPEC+ members that monthly output should be cut by 400,000 barrels per day from August, but said the extension should be considered separately.
The group usually settles their differences in private and prefers to demonstrate unity. But this rift is so deep that the country’s Energy Minister UAE and Saudi Arabia On Sunday, Bloomberg aired his complaints in interviews with television and other media.
Organization of the Petroleum Exporting Countries And his allies were supposed to meet again on Monday to try to bridge the divide, but they called off their meeting. Without the deal, markets would be in limbo at a time when they would be battling for more oil, whose prices have already risen nearly 50% this year.
Here’s why the UAE is digging in.
increase in production
The UAE claims it can pump more than the baseline of 3.2 million barrels per day given to it under OPEC+’s quota system. Energy Minister Suhail al-Mazrouei said the level was “totally unfair and unsustainable.”
The country wants an increase of 3.8 million barrels per day as the coronavirus pandemic was crushing oil demand – if signed in April 2020 – has been extended to the end of 2022.
Mazrouei said the UAE has about one-third of its output waste, meaning it is “sacrificing” its output to a greater extent than other OPEC+ members.
Saudi Arabia argues that it is withholding a lot more oil than the UAE – and has been doing so for years. Riyadh also emphasizes that expansion is needed to relax energy markets due to the continuing threat of fuel consumption from the pandemic.
Abu Dhabi, which produces nearly all of the UAE’s crude, is spending about $25 billion annually to help it expand its capacity to 5 million barrels per day by the end of the decade. The UAE’s de facto ruler, Crown Prince Mohamed bin Zayed, sees the plan as vital to raising more funds to invest in new industries and diversify the economy.
“They want a higher baseline to better reflect the investments they make,” Jeff Curry, global head of commodities at Goldman Sachs Group Inc., said in a Bloomberg television interview.
foreign partner
Unlike Saudi Arabia and most other Gulf OPEC Members are international companies as equity investors in the oil and gas sectors of Abu Dhabi. Longtime partners such as BP plc and Total Energies SE, which operated in the region since the UAE came into existence 50 years ago, have been joined by others in India and China over the past three years.
Sultan Al Jaber, chief executive officer of Abu Dhabi National Oil Company, has led an aggressive restructuring of the kingdom builder since taking over the role in 2016 and has done so with the steadfast support of Prince Mohammed. In addition to increasing capacity and relationships with Asian energy companies, they have sold billions of dollars worth of pipeline, refining and real estate assets to foreign private-equity investors.
Lower production could potentially hurt those investors as well as the UAE.
“We can’t continue with losing our investors on our investments,” Al Mazrouei said in an interview with Bloomberg Television.
crude futures
Abu Dhabi allowed its main grade of crude, called murban, to be traded on a new futures exchange earlier this year. This was the first time for an OPEC member.
It wants Murban to be adopted by oil traders and other Middle Eastern producers as a benchmark for the region. For that, it needs to ensure liquidity and large inflows to ease trading. Adnock has said it expects to make more than 1.1 million barrels per day available for exchange by August.
Increasing Murban production to near full capacity of about 2 million barrels per day would strengthen Adnoc’s bid to eventually attain benchmark status.
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