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After the failed talks exposed a dangerous rift at the center of the alliance, OPEC and its partners are working quietly to repair the damage.
Major players in the 23-nation alliance are making diplomatic efforts to resolve a dispute – centered around Saudi Arabia and the UAE – over how much crude to pump in the new year. They need to reach a compromise before ministers meet Thursday, in a meeting that has been postponed due to the impasse.
The Organization of the Petroleum Exporting Countries and its partners this year saved the oil market from an unprecedented collapse by reducing production with the pandemic that crushed demand. If their deal fails, prices will drop again, hitting an industry that spans small nations like Gabon to corporate giants like Exxon Mobil Corp.
On Monday, differences between the Saudis and the UAE prevented the cartel from reaching a clear agreement on whether to delay a planned increase in production. Traditionally loyal allies, a rift has emerged between the two Persian Gulf exporters as Abu Dhabi pursues a more independent oil policy.
Delegates spent Tuesday consulting with their governments and exchanging ideas over the phone. For now, the results are hidden in the opaque world of Middle East diplomacy, but several delegates on Wednesday said the consultations have been positive so far.
“OPEC + often generates drama, and this time the tensions are high,” said Helima Croft, chief commodity strategist at RBC. “But we still believe the group will likely find a face-saving compromise, with a short extension of the current cuts being the most likely outcome.”
Most nations during Monday’s online session preferred to postpone the 1.9 million barrel increase in daily supply that will take effect in January by three months. With a new wave of virus infections hitting the global economy, they believe demand is still too fragile to absorb further crude.
But the UAE rejected it, delegates said. Without openly opposing a delay, Energy Minister Suhail Al-Mazrouei insisted on strict conditions – mainly the swift implementation of cuts that other members owed in compensation for pumping too much in the previous months – which made an almost impossible.
In an apparent gesture of frustration, Saudi Arabia’s energy minister, Prince Abdulaziz bin Salman, told the group that he could step down as co-chair of a key OPEC + committee. Al Mazrouei was offered the job but refused, according to a person familiar with the situation.
“The market is underestimating a bit how bad this is – this is one of Saudi Arabia’s biggest allies,” Amrita Sen, co-founder of consulting firm Energy Aspects Ltd, told Bloomberg Television. a messy outcome this week, but sees tensions persist into the next year.
Deeper complaints
This procedural dispute masks the UAE’s deepest dissatisfaction with OPEC’s supply restrictions, which “does not bode well for collective cohesion in 2021,” according to Croft.
Over the summer, Abu Dhabi’s impatience has led her to put aside her customary obedience to cartel discipline and pump cruder than her quota allows. The Saudis were furious and summoned Al-Mazrouei to Riyadh for a public dressing.
While the UAE subsequently atoned, people familiar with its oil policy say Abu Dhabi believes the current quota is unfair and wishes to make the most of massive investments in production capacity. It is also planning a new regional price benchmark based on its raw Murban variety, which needs the kind of volumes that collide with production limits.
Two weeks ago, the Emirates even privately signaled that they were considering leaving OPEC in the long term. Analysts see it as just the latest example of the increasingly autonomous political framework pursued by Abu Dhabi Crown Prince Mohammed bin Zayed.
“The UAE is increasingly willing to act in its direct national interests, and where this is not in line with Saudi Arabia it is confident and willing to go it alone,” said Neil Quilliam, associate member of the Middle East program. and North Africa at the Chatham House think tank.
However, many oil observers expect a deal to be reached on Thursday. Algerian oil minister Abdelmadjid Attar, who currently holds the position of president of OPEC, told state radio on Tuesday that the postponement of the meeting shows the group is willing to find a consensus.
OPEC is no stranger to tough encounters. The April rally that led to the current manufacturing deal went on for several days as Mexico bargained over its contribution. In 1986, a round of talks in Geneva lasted 17 days, quickly followed by a 10-day marathon.
“There is a determined drive from the UAE to make its voice heard, to rearrange the chairs and thereby undermine Saudi leadership,” said Bill Farren-Price, director of the research firm Enverus. However, he expects a renewal to be agreed: “If they don’t, they’ll see a sharp drop in prices.”
– With the assistance of Dina Khrennikova, Julian Lee, Golnar Motevalli and Salah Slimani.
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