UAE and Saudi Arabia approaching oil production agreement

Four representatives and advisers of the organization said on Wednesday that the United Arab Emirates and Saudi Arabia have reached an outline of an agreement that will allow OPEC and its allies to reach an agreement to increase oil production, but warned that discussions are still going on , The agreement is still in progress. To be determined.

People familiar with the matter said that Saudi Arabia agreed in principle to modify the UAE’s “baseline” production level. Block OPEC+ agreement Last week, because it did not address its concerns about its own output goals.

They said that the transaction seems to be nearing completion, but the final details on the exact level of the benchmark-which is the basis for calculating the member states’ production targets-are still under discussion.

Any agreement between Saudi Arabia and UAE It still needs to be signed by other OPEC+ alliance members including Russia at the unscheduled meeting. The UAE’s Ministry of Energy confirmed that “the deliberations and consultations between the parties concerned are ongoing”.

OPEC’s goal is to increase production by 400,000 barrels per day from now to the end of the year. If the agreement between the UAE and Saudi Arabia yields results and other members revise the UAE’s baseline target to be higher, the timetable may be restored.

The UAE has increased its production capacity in recent years from about 3.5 mb/d in 2018 to 4 million barrels/d today, which means that it believes it is entitled to a higher baseline and production target. By 2030, it should be close to 5m b/d.

Due to the dispute between the UAE and Saudi Arabia, OPEC’s meeting this month has reached a deadlock, exacerbating the volatility of the crude oil market, as there are concerns that the dispute will prevent the planned increase in supply and undermine cartel cooperation.

The group cut production by nearly 10 million barrels per day during the peak period of the blockade when demand weakened last year. As demand recovers, production has been slowly increasing, but many oil traders and analysts believe that its speed is too slow to stop The market tightened quickly.

Tuesday, the International Energy Agency warning Unless OPEC acts quickly to increase supply, rising oil prices may begin to drag the economy back from the pandemic.

Oil price Reach the highest level Since 2018 last week, it has climbed to more than $77 per barrel. Brent crude oil prices fell 0.5% on Wednesday to US$76.14 per barrel.

People familiar with the negotiations said that the formal confirmation of the agreement between the two countries may have to wait until another OPEC meeting. They warned that the relationship between the two former Gulf allies is still tense.

“They may not officially confirm,” said a Gulf consultant familiar with the negotiations, referring to Saudi Arabia. “I don’t think they want to give such a boost to the UAE.”

Reuters reported on Wednesday that the transaction has been completed and the UAE’s new benchmark target is 3.65mb/d.

Two of the four representatives and consultants told the Financial Times that they expect the final agreed baseline may be lower, perhaps about 3.5mb/d. The Gulf consultant stated that the new baseline will be applied from April 2022.

Saudi Arabia hopes to extend the OPEC+ agreement at least until the end of 2022, believing that in view of the Covid-19 crisis and the emergence of variants of coronavirus such as Delta, the oil market needs greater certainty.

One of them said that Saudi Arabia may not want to confirm any preliminary agreement at all, preferring to propose it after OPEC+ is ready to meet and sign a broader agreement.

In view of the UAE’s long-term alliance, Riyadh is keen to downplay the depth of differences with the UAE on this issue.

Ayham Kamel of the Eurasia Group said that although Saudi Arabia has significant influence within OPEC+ to reach any agreement, if other countries also want to modify their baselines, they may still object.

“The UAE issue is likely to open the Pandora’s Box and require member states to reconsider the baseline issue more broadly,” Carmel said. “The risk of a potential agreement has not disappeared.”

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