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Infighting between Saudi Arabia and the UAE threatens the future of the oil group

Infighting between Saudi Arabia and the UAE threatens the future of the oil group

OPEC Secretary-General Mohamed Sanussi Barkindo (left), Saudi Arabia’s Minister of Energy, Prince Abdulaziz bin Salman (center), and Russian Minister of Energy Alexander Novak (right) On September 12, 2019, he attended the OPEC-JMMC meeting in Abu Dhabi, the capital of the UAE.

Karim Sahib | AFP via Getty Images

LONDON-OPEC, the organization of oil producing countries, is in crisis. The fierce internal fighting between Saudi Arabia and the United Arab Emirates has raised questions about the future of the Energy Union.

OPEC and non-OPEC partners, some of the most powerful oil producers in the world, Suddenly gave up the plan to reconvene on Monday After last week’s meeting Unexpected failure Facilitate the transaction of oil production policy. The team did not set a new date for the resumption of negotiations.

This means that no agreement has been reached on the possible increase in crude oil production after the end of July. As global fuel demand recovers from the ongoing coronavirus pandemic, the oil market is in a state of uncertainty.

Helima Croft, head of global commodity strategy at RBC Capital Markets, said in a research report: “OPEC+ has fallen into the most serious crisis since the ill-fated price war between Saudi Arabia and Russia last year.”

“It is reported that back-channel negotiations are still going on, but in the coming days, questions about the UAE’s commitment to remain in OPEC may increase.”

Croft said that the dispute between the UAE and Saudi Arabia does not seem to be solely related to oil policy. Abu Dhabi “seems to deliberately step out of the shadow of Saudi Arabia and chart its own course in global affairs.

The pandemic has brought them together, and now they are being separated after the pandemic.

John Kilduff

Founding Partner of Recreation Capital

OPEC+, led by crude oil producers in the Middle East, agreed to implement large-scale crude oil production cuts in 2020 to support oil prices when the coronavirus pandemic coincides with historical fuel demand shocks.

Led by Saudi Arabia, a close ally of the UAE, OPEC+ holds monthly meetings to determine production policies.

OPEC’s unity “disintegrates”

The chaos came after OPEC+ voted on a proposal on Friday to increase oil production by approximately 2 million barrels per day between August and the end of the year, with an increase of 400,000 barrels per month in installments. It also proposes to extend the remaining production cuts to the end of 2022.

The plan was rejected by the UAEHowever, it hopes that its quota will have a higher benchmark to allow more domestic production.

Tamas Varga, an oil analyst at PVM Oil Associates, said: “There is no agreement. As far as our current situation is concerned, the OPEC+ Alliance, if the term is still appropriate to describe the organization, then this year The remaining time production will remain at the level of July,” said in a research report.

“This [non-] The results of the meeting have rewritten the short-term and possible long-term supply and demand pattern,” he added.

In the rare open confrontation between the UAE and Saudi Arabia, the energy ministers of the two countries conducted a blitzkrieg in the media over the weekend, outlining their respective positions.

“For us, this is not a good deal,” Suhail Al Mazrouei, UAE Minister of Energy and Infrastructure, told CNBC’s Hadley Gamble on Sunday. He added that although the country is willing to support a short-term increase in oil supply, it hopes to have better conditions by 2022.

Saudi Arabia’s Energy Minister Abdulaziz bin Salman called on the Arabya TV channel owned by Saudi Arabia on Sunday “Compromise and rationalityAccording to Reuters, in order to reach an agreement on Monday.

In addition, according to reports, a White House spokesperson said on Monday that President Joe Biden’s administration is pushing for a “compromising solution”.The United States is not a member of OPEC (on behalf of the Organization of Petroleum Exporting Countries), but it has been watching the latest round of negotiations closely. Potential impact on the crude oil market next year.

On Monday, in response to the news that the OPEC+ meeting was adjourned without an agreement, John Kilduff, the founding partner of Again Capital, said: “The unity of OPEC is disbanded today.”

“The pandemic united them and now separates them after the pandemic. The UAE insists on raising the baseline. They hope to produce more,” he told CNBC via email.

Kilduff said: “The interesting thing now is who will leave,” and pointed out that the UAE may be the “first domino” to fall.

When CNBC contacted OPEC on Tuesday, OPEC did not immediately respond to a request for comment.

Oil prices climb to multi-year highs

The news pushed up oil prices.International benchmark Brent Crude oil futures traded at US$77.34 per barrel on Tuesday morning, an increase of 0.2% on the same day. West Texas Intermediate The futures price was US$76.36, an increase of approximately 1.6%.

At one time, the price of WTI crude oil was as high as US$76.98. This is the highest price since November 2014.

Supported by the launch of the Covid-19 vaccine, the gradual relaxation of lockdown measures, and the large-scale production cut of OPEC+, oil prices rose by more than 45% in the first half of this year.

Capital Economics’ assistant commodity economist Samuel Burman (Samuel Burman) said that OPEC oil-producing countries may increase their oil production above their quotas next month as member countries “see to take advantage” of rising oil prices.

In addition to the rift between the UAE and Saudi Arabia, he also said that Abu Dhabi may be “somewhat irritated” by Russia’s failure to comply with OPEC’s production quotas.

Burman said that non-OPEC leader Russia has not taken any compensatory measures to reduce production at all, and currently has a surplus of about 100,000 barrels per day. “We believe that this dispute involving the UAE has increased the possibility of the entire agreement breaking down, which will obviously pose a downside risk to our near-term price forecast.”

— CNBC Patty Dom Contributed to this report.

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