OPEC and allies agree to boost supply and phase out oil production cuts

Saudi Energy Minister Prince Abdulaziz bin Salman Al-Saud speaks via video link during a virtual emergency meeting of OPEC and non-OPEC countries at the following the coronavirus epidemic (COVID-19), in Riyadh, Saudi Arabia, on April 9, 2020.

Saudi Press Agency | Reuters

DUBAI, United Arab Emirates – The Organization of the Petroleum Exporting Countries (OPEC) and its non-OPEC allies on Sunday reached an agreement to phase out 5.8 million barrels per day of reduced oil production by September 2022 when commodity prices hit their highest level in more than two years.

Coordinated increases in the oil supply of the group, known as OPEC +, will begin in August, OPEC said in a statement.

Overall production will increase by 400,000 barrels per day on a monthly basis from then on. The International Energy Agency estimates a deficit of 1.5 million barrels per day for the second half of this year, indicating a tight market despite the gradual increase in OPEC supply.

OPEC + agreed in spring 2020 to cumulatively reduce historic production of nearly 10 million barrels per day of crude as it faced a collapse in oil prices induced by a pandemic. The alliance has gradually reduced the cuts to around 5.8 million barrels per day.

The 19th OPEC and non-OPEC ministerial meeting noted that global oil demand was showing “clear signs of improvement and declining OECD stocks, as economic recovery continued in most countries. regions of the world “through the acceleration of immunization programs.

International benchmark Brent crude is up 43% year-to-date and more than 60% from the same period last year, with many forecasters expecting oil to trade at $ 80 per barrel in the second half of 2021. Brent closed at $ 73.59 per barrel. at the end of the Friday trading day.

An unprecedented stalemate

The deal follows a temporary but unprecedented blockage that began in early July and saw the United Arab Emirates reject a coordinated oil production plan for the group led by its mainstay, Saudi Arabia. Although the 13-member organization has already seen disagreements, it was the first public split between the United Arab Emirates and Saudi Arabia, which are close allies.

Abu Dhabi had demanded that its own “benchmark” for crude production – the maximum volume it is recognized by OPEC as capable of producing – be increased because that figure then determines the size of production cuts and quotas. which he must follow in accordance with the group’s production agreements. . Members reduced the same percentage of their baseline, so having a higher baseline would allow UAE a larger production quota.

Sunday’s deal revealed base increases for four of OPEC’s member states and one non-OPEC member state from May 2022: the United Arab Emirates, Saudi Arabia, Iraq, Kuwait and Russia, the latter of which is not a member of OPEC but an OPEC + leader. . The UAE’s baseline for oil production will drop from 3.16 million barrels per day to 3.5 million barrels per day, although below the 3.8 million originally requested. Saudi Arabia’s baseline will drop from 11 million barrels to 11.5 million barrels per day.

Abu Dhabi’s support for the deal was evident in the opening statement by UAE Energy Minister Suhail Al Mazroui.

“We appreciate the constructive dialogue we have had with His Highness and OPEC,” Al Mazroui told reporters during a press call on Sunday, referring to Saudi Energy Minister Prince Abdulaziz bin Salman . “I confirm that the UAE is committed to this group and will always work with it and within this group to do our best to achieve market balance and help everyone. The UAE will remain a committed member. of the OPEC alliance. “

Russian Energy Minister Alexander Novak said in a written statement to the Saudi minister that “We are ready to support whatever you say.”

Asked how the UAE and Saudi Arabia managed to find their compromise, the Saudi minister remained reserved, resisting several attempts by the press to glean more details on the negotiations.

“Why should I disclose it? It’s an art and we keep it between us,” Abdulaziz bin Salman said on Sunday’s conference call. “We call it a state secret. Consensus building is an art … without revealing our state secret, I’ll keep it like this.”

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