UAE ‘remains committed’ to Opec+ accord

The UAE on Thursday affirmed its commitment to the Opec+ agreement, following a sharp drop in oil prices on Wednesday, triggered by a comment on a possible output hike attributed to the country’s envoy to the US.

''The UAE remains committed to the Opec+ agreement and its existing monthly production adjustment mechanism," Suhail bin Mohammed Al Mazrouei, Minister of Energy and Infrastructure, said in a statement clarifying the country’s position on production hike.

''The UAE believes in the value the Opec+ agreement brings to the world oil market as there is no other agreement to raise output individually than this agreement in light of the UAE's continuous support for and compliance with the said agreement,'' the minister said.

On Wednesday, the UAE's ambassador to Washington, Yousef Al Otaiba, was quoted by CNN as saying that the country wants to increase oil production and will encourage the Opec to ramp up supply. "We favour production increases and will be encouraging OPEC to consider higher production levels," Otaiba was quoted as saying by CNN.

"The UAE has been a reliable and responsible supplier of energy to global markets for more than 50 years," Otaiba said, "and believes that stability in energy markets is critical to the global economy."

The CNN report sent oil prices dropping on Wednesday. US oil fell 12 per cent to less than $109 a barrel. Brent crude, the global benchmark, fell 13 per cent to $111 a barrel. It marked their steepest one-day decline in nearly two years.

Louise Dickson, Rystad Energy’s senior oil market analyst, said in a note shared with Khaleej Times that the reported announcement of 800,000 bpd production ramp-up led to price falls, but a price recovery is likely unless Opec+ matches increase.

“The UAE announcement of ramping up its oil production by 800,000 bpd triggered a sell-off as it was interpreted as a signal that potentially other Opec members with significant spare capacity, such as Saudi Arabia and Kuwait, would consider this option and also open the floodgates,” said Dickson.

He said there was no such coordinated action, yet oil kept trading down, likely due to many stop orders placed at $120 per barrel, a threshold once breached on a downward trajectory was an unpalpable hold for the short-term bull market opportunists.

“Indeed, core Middle East Opec countries Saudi Arabia, Iraq, the UAE, and Kuwait are the only bloc that could counterweight the supply risk from Russia. Together, the four countries have about four million bpd in spare capacity, that is, oil production that can be brought onto the market within a 3-6 month period,” said Dickson.

He pointed out that most of these countries have vast onshore storage capabilities that can be tapped, meaning that a few million barrels could be nominated for exports in weeks, if not days. “However, the unilateral increase by the UAE without any Saudi participation wouldn’t be nearly enough to cover the perceived, or real, market shortage, so until there is a consensus from Opec+, prices should regain some, if not all, of the lost territory.”

Vijay Valecha, chief investment officer, Century Financial, said the 18 per cent downward move of oil prices made look even the crypto price movement pale. The primary reason for yesterday’s bearish activity can be attributed to Opec’s acceptance of tight supply in the markets.

"The UAE ambassador to Washington has said that they favor production increases and would also encourage other Opec+ nations to consider higher production levels. The news took the focus away from the US banning Russian oil products, with the markets now waking up to the new reality of increased supply,” said Valecha.

The latest data from Opec+ suggest the group raised their production in February by a collective 480,000 bpd, one of the highest since the planned increase was announced. In addition, the US EIA crude oil inventory data showed a drawdown of 1.9 million barrels, substantially higher than analyst expectations of 1.1 million barrels.

issacjohn@khaleejtimes.com