UAE backs OPEC+ supply hike, but looks for better terms

DUBAI: The UAE sought to clarify its position on oil supply ahead of a crucial meeting of OPEC+, the producers’ alliance led by Saudi Arabia and Russia.

A statement from the UAE’s Ministry of Energy and Infrastructure said: “UAE believes that the market needs an increase in production and supports an increase from August.”

But it also confirmed its opposition to an extension of the current OPEC+ deal, which expires next April, without a significant renegotiation of its existing supply agreements with the 23-strong organization.

The UAE’s reluctance to go along with an overall plan to increase supply by about 400,000 barrels per day (bpd) from the start of next month until the end of the year was the reason last week’s OPEC+ talks were adjourned. They will resume in virtual form from Vienna on Monday. “The Joint Ministerial Monitoring Committee (the body that oversees output within OPEC) unfortunately only put one option forward — to increase production on the condition of an extension to the current arrangement, which would prolong the UAE’s unfair reference production deadline until December 2022,” the UAE statement added.

UAE Energy Minister Suhail Al-Mazrouei told CNBC that linking the extension to an agreement that goes back to 2018 was “just not realistic,” adding that the country had “the sovereign right” to renegotiate its terms.

The UAE has asked to “decouple” the planned increase next month from the extension proposal, arguing that there is “plenty of time” to discuss the December 2022 extension later.

Some oil experts believe that OPEC+ will find a solution to the impasse before talks recommence.

Mike Muller, head of the Asian operations of global trading group Vitol, said: “This is a very sophisticated organization. We’ve had impasses like this before and they have been resolved. The baseline was set in a great hurry at the height of the pandemic.”

But there are still stumbling blocks to a deal to get the much-needed crude back onto global markets ahead of what many economists believe will be a demand surge this autumn, as the post-pandemic recovery gathers pace. At the heart of the disagreement is a desire by the UAE, with output capacity around 4 million bpd, to pump more oil and receive more revenue than its current 3.1 million bpd output. The country has invested heavily in expanding its capacity even under the pandemic recession.

Saudi Arabia’s capacity is much bigger than that, potentially reaching 13 million bpd under a long-term strategy by the Kingdom.

If there is no deal agreed for next month and output continues at current levels, there is the possibility of a big spike in oil prices as limited supply meets surging demand. Some experts believe that demand will be near the 100 million bpd level of pre-pandemic levels by the end of this year.

Alternatively, if the UAE’s stance were to lead to a breakdown of the OPEC+ supply controls, the resulting free-for-all could flood the market, leading to a crash in the oil price.

The rising price of crude — with Brent at $76 per barrel last week — is a testimony to the way OPEC+ has managed the global oil market rebalancing, Christof Ruehl, a senior research fellow at the Columbia University Center for Global Energy policy, told a Gulf Intelligence webinar. “This situation has come about because of the success of OPEC+ policy.”