Opec+ summit postponed, no new date set
After failing last week, the 23 members of the group were expected again to reach an agreement on how much crude to put on the market.
Oil ministers of Opec+ countries indefinitely postponed a crucial meeting scheduled on Monday to iron out differences on a proposed eight-month extension to output curbs.
On Monday Opec+ sources said since there had been no progress in resolving the matter, the meeting was postponed.
After failing last week, the 23 members of the group of oil producers were expected again to reach an agreement on how much crude to put on the market. Since May, the group has raised oil output little by little, after slashing it more than a year ago when the coronavirus pandemic crushed demand.
The current proposal is to increase output each month from August to December by 400,000 barrels per day (bpd), providing oil markets with an additional two million bpd by the end of the year. But it is the suggestion of extending the agreement on incremental increases until the end of 2022 that has caused a hitch.
The UAE is prepared to extend the agreement if necessary, its Energy Minister Suhail Mohamed Al Mazrouei told the WAM news agency. But it wants the reference output levels raised to ensure they are fair. The UAE’s level, established in October 2018, is 3.17 million bpd, well below its effective potential output level of 3.8 million in April 2020, just before the sharp output cuts took effect
Saudi energy minister Prince Abdulaziz bin Salman on Sunday called for “compromise and rationality” to secure a deal after two days of failed discussions last week. They focus on raising output from August, partly to help cool oil prices trading at 2-1/2 year highs, with Brent around $76 on Monday.
Those prices are prompting concerns about inflation derailing a global recovery from the pandemic.
Opec+ agreed 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.
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 2.0 million bpd from August to December but rejected extending remaining cuts to the end of 2022 from a current end date of April.
The core of the Opec+ rift is that the UAE is lobbying for more production, a demand Russia is quietly supporting on the sidelines while Saudi Arabia is opposing.
On Friday, the energy alliance voted on a proposal to increase oil production by roughly 2.0 million barrels per day between August and the end of the year in 400,000 barrels per day monthly instalments. It also proposed to extend the remaining output cuts to the end of 2022.
The UAE rejected these plans however, blocking an agreement for the second consecutive day.
"For us, it wasn't a good deal," Al Mazrouei was quoted as saying on Sunday. He added that while the UAE was willing to support a short-term increase in oil supply, it wants better terms through 2022.
Rystad Energy’s Lefteris Karagiannopoulos said the disagreements within Opec+, that have been dragging policy negotiations since Thursday, had added a serious spin of uncertainty for traders and prices are rising on the prospect of a no-deal that could strip the market of the extra barrels that it expects from the alliance from August.
“Oil market tensions have not been this tense since the 6 March 2020 breakup, and the uncertainty is driving prices beyond two-year highs in the near short term,” said Karagiannopoulos.
The reason a no-deal is bullish for the market is that, unlike the previous breakup in March 2020, if Opec+ members don’t agree on a new deal - they are still party to the original deal already in place which does not immediately cater for more output after July.
“As balances stand at the moment and with a surge in summer oil demand, even rising output by as much as 500,000 bpd in August is bullish. So, keeping Opec+ production steady to July levels instead is ultra-bullish due to the undersupply that such a development would cause this summer,” said Karagiannopoulos.
As such, energy strategists at ING said on Monday that an Opec+ proposed increase of around 400,000 barrels per day would likely be supportive for prices.
"Failing to come to a deal may provide some brief upside to the market, with reports that output would remain unchanged if Opec+ does not come to an agreement," they added.
"However, realistically it could also signal the beginning of the end for the broader deal, and so the risk that members start to increase output."
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