The UAE broke away from OPEC leader Saudi Arabia this week and demanded strict compliance with production cuts, effectively delaying OPEC + from making its latest production strategy decision for a few days, Reuters quoted sources as saying.\
The unusual move highlights the growing role of the UAE within OPEC, which is seeking to increase production in the next few years to grab market share.
It also highlights the growing political independence of Abu Dhabi from Riyadh. This became apparent this year when the UAE became the first country in the Gulf to normalize relations with Israel.
OPEC and Russia led allies have now postponed the 2021 oil production policy consultation to Thursday, as major oil producing countries are still divided on production issues at a time when demand is weak due to the new crown epidemic. It is widely expected that the alliance will extend the current 7.7 million B / D production reduction policy to the first quarter of 2021 to cope with weak demand caused by the resurgence of the new epidemic.
The UAE said this week that it would be difficult to maintain the same level of production cuts by 2021, even if it could support the extension of production cuts, three sources told Reuters. It said all over producing countries should comply with their plans to cut production and compensate for previous overproduction.
It is reported that the UAE raised the issue at an informal meeting on Sunday and raised it again at the OPEC meeting on Monday.
This could be a key obstacle, as Iraq insists it cannot cut production further because of budget problems, while Russia has made it clear that there is no need for compensation.
Iraq publicly hinted last week that it had lost patience with OPEC + production cuts. It’s not just Iraq. RBC capital markets has raised geopolitical risk indicators for seven countries, of which Iraq is just one. The restless group also includes Nigeria, which has fallen into recession and is facing domestic protests.
With vaccine optimism boosting Brent crude oil prices close to $50 a barrel, oil producers’ negotiations have become more complicated, analysts said. While the rise in oil prices is not enough to allow OPEC members to avoid fiscal deficits, it has made some countries uneasy about voluntarily giving up their revenues.
No matter what the final decision is, there are risks. If we choose not to extend the production reduction or decide to increase production slowly, which is not in line with the expectations of the outside world, it is possible that the oil price rebound that OPEC + has helped to achieve since the spring will fall short. The fact that OPEC + has been predictable so far this year has boosted traders’ expectations. If it does not meet these expectations, even if only a little, it may cause market turbulence.
However, if OPEC + extends the production reduction measures as expected by the market, or even increases the scale of production reduction, the alliance will face the implementation problem of some members who are unable to fulfill the production reduction quota. Production in Iraq and Nigeria has repeatedly exceeded agreed levels.
Bassam fattouh and Andreas Economou of the Oxford Institute for energy studies recently pointed out in an article that if the implementation rate of the production reduction agreement of OPEC + members in 2021 and 2022 is only 70%, then the average oil price next year may fall by $7 / barrel compared with the situation of 100% compliance.
article links：This "hard nail" may be the reason for the postponement
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