Adrenalin never stops flowing in the oil business. Dull moments are rare. The emerging scenario among the Organization of Petroleum Exporting Countries and their allies in the expanded OPEC+ is no different.
The group was on the verge of finalizing a deal on Thursday to increase its crude output by two million barrels per day (bpd) by the end of the year. This meant a monthly output increment of 400,000 bpd, beginning in August. That was 20 per cent less than the anticipated output deal.
Prior to the OPEC+ meeting last week, pundits believed that in view of rising global oil demand and escalating prices, the group could increase output by 500,000 bpd.
But Saudi Arabia, the OPEC kingpin, wanted to play it safe. Russia appeared to be in the same boat.
But drama and energy move side by side. This time, the United Arab Emirates played spoiler. OPEC+ members – except for the U.A.E. – agreed to ease production cuts, with a planned extension to the end of next year, according to Reuters citing an OPEC+ source. But the U.A.E. wanted the extension conditional on revising its baseline production, Reuters reported. This meant raising the U.A.E. production quota.
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Sources indicate this generated a lot of heat in the virtual meeting room since if the U.A.E. got its way, others could demand the same treatment.
“Any request to adjust the production quota would be like opening Pandora’s box,” Giovanni Staunovo, a commodity analyst at UBS Group AG, told Bloomberg. That could result in a production increase of about 700,000 bpd for the U.A.E. alone, and “other OPEC+ states might also request an adjustment,” Staunovo said.
The U.A.E. has long been regarded as an ally of Saudi Arabia on most fronts, from crude oil geopolitics to regional politics and have co-ordinated their moves. Crown Prince Mohammad bin Zayed (M.B.Z.) of U.A.E. has supported and choreographed the rise of Crown Prince Mohammad bin Salman (M.B.S.) of Saudi Arabia.
M.B.Z. is believed to have helped convince Jared Kushner and the former Donald Trump administration in the United States to blindly support M.B.S.
The U.A.E. and Saudi Arabia also dealt with Yemen and Qatar issues in lockstep. It’s also believed that the U.A.E. couldn’t have eased relations with Israel without tacit support from Saudi Arabia.
So how could the U.A.E. insist now on enhancing its output baseline without support from Saudi Arabia?
It’s billion-dollar question.
The U.A.E. is changing its relationship with Saudi Arabia, starting to chart an independent path.
It’s also becoming more independent within the OPEC context, says a veteran industry observer. “Last year, there were serious discussions for the U.A.E. to leave OPEC. With ADNOC (the U.A.E. national oil company) going through a commercial metamorphosis – new trading units, new futures contract, pushing Murban as a benchmark – the calls were getting louder for more freedom. Saudi pressure (to tow their line) can in fact strengthen the calls to leave OPEC+ – once again. I would not be surprised to see the U.A.E. leave OPEC+ – or even threaten this in public,” the observer emphasized.
Another OPEC veteran observer who’s a senior partner at an energy consultancy seems to concur: “If the U.A.E. felt increasing its production was necessary, (it) would do so without consent from Saudi Arabia.”
Saudi Arabia now appears to be more dependent on the United States than the U.A.E. Under U.S. pressure, Saudi Arabia opted to end the Qatari blockade. But the U.A.E. is “dragging its feet” when it comes to improving relations with Qatar.
Even within the U.A.E. there are divergent courses of action, he points out. In contrast, the Emirate of Dubai has returned to near-normal commercial ties with Qatar, and the relationship between the Qatari and the U.A.E. ruling families appears close again.
Times are changing. Saudi Arabia, the OPEC kingpin, is losing its clout.
Toronto-based Rashid Husain Syed is a respected energy and political analyst. The Middle East is his area of focus. As well as writing for major local and global newspapers, Rashid is also a regular speaker at major international conferences. He has been asked to provide his perspective on global energy issues by both the Department of Energy in Washington and the International Energy Agency in Paris. For interview requests, click here.
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