Page 16 - MEOG Annual Review 2021

MEOG JULY MEOG

Cartel compromise: OPEC+

members reach agreement

The key oil-producing group came to an agreement this week to avoid a potential supply
shortage, but with compromises made, OPEC+ has created another potential headache.

OPEC+ THE OPEC+ group this week reached an agree- potential banana skin of a wholesale push to lift
ment that will result in increased oil production baseline production levels.
as five members saw their baseline output levels In May, the reference levels of the group’s two
WHAT: raised after tense negotiations. top producers, Saudi and Russia, will increase
Both Saudi Arabia and Under the agreement, the members will col- by 500,000 bpd to 11.5mn bpd, with the UAE’s
the UAE managed to lectively ease their production cuts by 400,000 rising by 332,000 bpd to 3.5mn bpd as Iraq
get what they wanted barrels per day (bpd) each month from August and Kuwait also receive uplifts of 150,000 bpd
with OPEC+ members and push back the current April 2022 end date each, taking their baselines to 4.803mn bpd and
agreeing to extend the until the end of that year. 2.959mn bpd respectively.
deal to ease cuts while At this rate, it will take nearly 15 months for
higher baseline levels OPEC+ to increase production by the 5.8mn Rhetoric
were announced for the bpd it is still withholding under the agreement For the UAE, the baseline production level is of
biggest producers. reached in early 2020 as they scrambled to bal- great relevance. Its current 3.168mn-bpd level is
ance the market. based on October 2018 output, but Abu Dhabi
WHY: Speaking to Russia 24, Russia’s energy min- in particular has invested heavily in expanding
Riyadh’s intention was ister Alexander Novak said: “Today we made a capacity, which now stands at 4mn bpd.
to maintain adherence decision for the market to restore production to The country’s officials have complained about
to the deal while the UAE a pre-crisis level.” the shut in of a disproportionate level of output
had complained that its Meanwhile, from May 2022, the baseline – 35% – compared to other members – 25% on
2018-influenced baseline production levels of the group’s five largest pro- average.
was no longer relevant. ducers will rise by a combined 1.632mn bpd. The Abu Dhabi National Oil Co. (ADNOC) has
group’s next meeting is scheduled for September embarked on a $122bn four-year programme
WHAT NEXT: 1 with a thorough review of the deal planned for which is designed to help it raise output capacity
OPEC+ will continue December. to 5mn bpd by 2030, with the company this week
adding 400,000 bpd of oil The news marks a significant compromise announcing more than $760mn in contract
production each month following a breakdown in talks two weeks ago awards to achieve this.
until the end of 2022 with as Saudi Arabia and the UAE dug their heels in. Meanwhile, for Riyadh, the heightened ten-
the new base levels to be Riyadh had been pushing for the monthly pro- sion is more based in reputation and control.
implemented in May. duction increases to be tied to a commitment to Saudi Arabia’s baseline of 11mn bpd has little
extend the existing supply cut, while the Emir- bearing in reality – the Kingdom has exceeded
ates had sought an upward revision of its refer- this level only twice in history – in November
ence point for cuts before it would agree to any 2018 and April 2020, when it hit 12.1mn bpd as
extension. it launched a price war with Moscow, sending
This week’s deal sees both parties get what prices into freefall. In October 2018, it was run-
they wanted while apparently avoiding the ning at 10.77mn bpd.

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