Page 12 - FSUOGM Week 29 2021

FSUOGM POLICY FSUOGM

Cartel compromise: OPEC+

members reach agreement

GLOBAL THE OPEC+ group this week reached an agree- the shut in of a disproportionate level of output
ment that will result in increased oil production – 35% – compared to other members – 25% on
The UAE and Saudi as five members saw their baseline output levels average.
Arabia agreed to a raised after tense negotiations. Abu Dhabi National Oil Co. (ADNOC) has
compromise. Under the agreement, the members will col- embarked on a $122bn four-year programme
lectively ease their production cuts by 400,000 which is designed to help it raise output capac-
barrels per day (bpd) each month from August ity to 5mn bpd by 2030, with the company this
and push back the current April 2022 end date week announcing more than $760mn in contract
until the end of that year. At this rate, it will take awards to achieve this.
nearly 15 months for OPEC+ to increase pro- Meanwhile, for Riyadh, the heightened ten-
duction by the 5.8mn bpd it is still withholding sion is more based in reputation and control.
under the agreement reached in early 2020 as Saudi Arabia’s baseline of 11mn bpd has little
they scrambled to balance the market. bearing in reality – the Kingdom has exceeded
Speaking to Russia 24, Russia’s energy min- this level only twice in history – in November
ister Alexander Novak said: “Today we made a 2018 and April 2020, when it hit 12.1mn bpd as
decision for the market to restore production to it launched a price war with Moscow, sending
a pre-crisis level.” prices into freefall. In October 2018, it was run-
Meanwhile, from May 2022, the baseline ning at 10.77mn bpd.
production levels of the group’s five largest pro- However, Moscow and others have been
ducers will rise by a combined 1.632mn bpd. The pushing to step up output and Riyadh could not
group’s next meeting is scheduled for September be seen to take a secondary position to Russia.
1 with a thorough review of the deal planned for That said, the closer Saudi production comes to
December. its OPEC+ quota, the less flexibility it can wield
The news marks a significant compromise to keep others in line.
following a breakdown in talks two weeks ago Meanwhile, state-owned Saudi Aramco
as Saudi Arabia and the UAE dug their heels in. has a maximum sustainable capacity (MSC)
Riyadh had been pushing for the monthly pro- of 12mn bpd, which it has been instructed
duction increases to be tied to a commitment to to increase to 13mn bpd by the Ministry of
extend the existing supply cut, while the Emir- Energy.
ates had sought an upward revision of its refer- The potential upside for Saudi Arabia is that
ence point for cuts before it would agree to any once Aramco completes the projects to raise
extension. MSC, it can produce at a higher level without
This week’s deal sees both parties get what being seen to flout the quotas. However, the
they wanted while apparently avoiding the company is still working on a plan to achieve this
potential banana skin of a wholesale push to lift increase as maintaining production at mature
baseline production levels. assets and tapping the Jafurah basin for gas take
In May, the reference levels of the group’s two priority.
top producers, Saudi and Russia, will increase Speaking to NewsBase, Ian Simm, Principal
by 500,000 bpd to 11.5mn bpd, with the UAE’s Advisor at consultancy IGM Energy said: “This
rising by 332,000 bpd to 3.5mn bpd as Iraq deal lets both the Saudis and the Emiratis to
and Kuwait also receive uplifts of 150,000 bpd claim victory. From Saudi Arabia’s perspective it
each, taking their baselines to 4.803mn bpd and was able to extend the deal while only allowing
2.959mn bpd respectively. baseline level alterations for key allies. Even then,
the move will have little bearing on Iraq, which
Rhetoric has routinely overproduced.”
For the UAE, the baseline production level is of Meanwhile, he added: “With Saudi unlikely
great relevance. Its current 3.168mn-bpd level is to utilise any of its additional 500,000-bpd wiggle
based on October 2018 output, but Abu Dhabi room for the time being, allowing other mem-
in particular has invested heavily in expanding bers to add around 1.1mn bpd to the market
capacity, which now stands at 4mn bpd. from May next year seems like a deal worth mak-
The country’s officials have complained about ing to maintain co-operation.” ™

P12 www. NEWSBASE .com Week 29 21•July•2021