The Organization of the Petroleum Exporting Countries and Allies (OPEC+) was expected to meet today to conclude its decision as to whether or not to extend output cuts by 8 months but the meeting has been called off with no new date agreed.
Why the meeting was called off
OPEC+ ministers clashed last week when the United Arab Emirates rejected a proposed eight-month extension to output cuts. The UAE, according to sources, on Friday went along with Saudi Arabia and other OPEC+ members on a proposal to raise output in stages by about 2 million BPD from August to December but rejected extending remaining cuts to the end of 2022 from the current end date of April.
The UAE is upset about the baseline from which its production cuts are being calculated and wants it raised. Abu Dhabi has invested billions of dollars to increase its production capacity and says its baseline was set too low when OPEC+ originally forged their pact.
The UAE is not alone in requesting a higher baseline as countries like Azerbaijan, Kazakhstan, Kuwait and Nigeria had also requested and received new ones since the deal was first agreed last year. Because there has been no progress in resolving the matter ahead of a meeting, the meeting was called off.
OPEC+ agreed on record output cuts of almost 10 million barrels per day (BPD) last year as the pandemic hit. They have been gradually relaxed and stand at about 5.8 million BPD. Decisions in OPEC+, which groups the Organization of the Petroleum Exporting Countries with Russia and other big producers, must be unanimous.
What to expect
The failure of the talks means an expected increase in output from August will not take place. The dispute reflects a growing divergence between Saudi Arabia and the UAE.
The two nations had built a regional alliance, combining financial and military muscle to fight a conflict in Yemen and project power elsewhere. But the UAE has withdrawn from action in Yemen, while Saudi Arabia has sought to challenge the UAE’s dominance as the region’s business and tourism hub.
The UAE in August 2020 also agreed to normalise relations with Israel, while Saudi Arabia has no official diplomatic relations with Israel.