Oil prices jumped to a new high after a disagreement between Saudi Arabia and the UAE about oil production quotas. West Texas Intermediate crude advanced to $76.98 a barrel, the highest since November 2014, as the OPEC+ talks are postponed indefinitely. Meanwhile, Brent crude, the global benchmark, maintained its three-year high of about $77 a barrel.
A meeting of the OPEC countries and its allies on the ministerial level was scheduled for Monday (05 July) as the countries reconvene for talks from the past week. The issue started as a disagreement over production rates but swiftly deteriorated into an unusually personal and public spat between Saudi Arabia and the UAE.
Proposal for a gradual increase of 400,000 barrels per day between August and the end of the year were rejected by the UAE as it demands an unconditional increase in production from August going forward. The objection by the UAE comes on the ground that its output had been set “unfairly” and thus wants to change its productions baseline going forward. OPEC plus countries are considering extending an agreement over baseline levels for 2022 but the UAE, which has a baseline of 3.2 million barrels a day (as of April 2020), says it is too low and needs to be increased to 3.8 million barrels a day if the deal is extended.
The proposal for a gradual increase was agreed on by the OPEC+ participants, including the two biggest producers Saudi Arabia and Russia, for the sake of ensuring stability and flexibility in global oil markets into 2022, when rising demand, potential supply fluctuations, and possible pandemic resurgence could increase price volatility. Saudi Arabia is also reluctant to agree to the UAE's demands because it could motivate other OPEC+ countries to ask for similar demands.
Experts believe that there is room for compromise but actions must come swiftly. Suhail Al Mazrouei, the UAE's Minister of Energy and Infrastructure said that everyone sacrificed but the UAE has sacrificed the most. OPEC has announced that it needs more time to study the proposals from the UAE.
A lot is at stake at the OPEC+ meeting as countries race for global economic recovery amid growing inflationary risks. The longer the countries take to reach an agreement on production, the higher the prices will grow. Major consumers such as the United States have already expressed their concern.
