Page 12 - NorthAmOil Week 29 2021

NorthAmOil POLICY NorthAmOil

Cartel compromise: OPEC+

members reach agreement

GLOBAL THE OPEC+ group this week reached an agree-
ment that will result in increased oil production
as five members saw their baseline output levels
raised after tense negotiations.
Under the agreement, the members will col-
lectively ease their production cuts by 400,000
barrels per day (bpd) each month from August
and push back the current April 2022 end date
until the end of that year. At this rate, it will take
nearly 15 months for OPEC+ to increase pro-
duction by the 5.8mn bpd it is still withholding
under the agreement reached in early 2020 as
they scrambled to balance the market.
Speaking to Russia 24, Russia’s energy min-
ister Alexander Novak said: “Today we made a
decision for the market to restore production to week announcing more than $760mn in con-
a pre-crisis level.” tract awards to achieve this.
Meanwhile, from May 2022, the baseline pro- Meanwhile, for Riyadh, the heightened ten-
duction levels of the group’s five largest produc- sion is more based in reputation and control.
ers will rise by a combined 1.632mn bpd. The Saudi Arabia’s baseline of 11mn bpd has little
group’s next meeting is scheduled for September bearing in reality – the Kingdom has exceeded
1 with a thorough review of the deal planned for this level only twice in history – in November
December. 2018 and April 2020, when it hit 12.1mn bpd as
The news marks a significant compromise it launched a price war with Moscow, sending
following a breakdown in talks two weeks ago prices into freefall. In October 2018, it was run-
as Saudi Arabia and the UAE dug their heels in. ning at 10.77mn bpd.
Riyadh had been pushing for the monthly pro- However, Moscow and others have been
duction increases to be tied to a commitment to pushing to step up output and Riyadh could not
extend the existing supply cut, while the Emir- be seen to take a secondary position to Russia.
ates had sought an upward revision of its refer- That said, the closer Saudi production comes to
ence point for cuts before it would agree to any its OPEC+ quota, the less flexibility it can wield
extension. to keep others in line.
This week’s deal sees both parties get what Meanwhile, state-owned Saudi Aramco has a
they wanted while apparently avoiding the maximum sustainable capacity (MSC) of 12mn
potential banana skin of a wholesale push to lift bpd, which it has been instructed to increase to
At this rate, it baseline production levels. 13mn bpd by the Ministry of Energy.
In May, the reference levels of the group’s two
The potential upside for Saudi Arabia is that
will take nearly top producers, Saudi and Russia, will increase once Aramco completes the projects to raise
15 months by 500,000 bpd to 11.5mn bpd, with the UAE’s MSC, it can produce at a higher level without
rising by 332,000 bpd to 3.5mn bpd as Iraq being seen to flout the quotas. However, the
for OPEC+ and Kuwait also receive uplifts of 150,000 bpd company is still working on a plan to achieve
each, taking their baselines to 4.803mn bpd and this increase as maintaining production at
to increase 2.959mn bpd respectively. mature assets and tapping the Jafurah basin for
gas take priority.
production by the Rhetoric Speaking to NewsBase, Ian Simm, Principal

5.8mn bpd it is For the UAE, the baseline production level is of Advisor at consultancy IGM Energy said: “This
great relevance. Its current 3.168mn-bpd level is deal lets both the Saudis and the Emiratis to
still withholding. based on October 2018 output, but Abu Dhabi claim victory. From Saudi Arabia’s perspective
in particular has invested heavily in expanding it was able to extend the deal while only allow-
capacity, which now stands at 4mn bpd. ing baseline level alterations for key allies. Even
The country’s officials have complained about then, the move will have little bearing on Iraq,
the shut in of a disproportionate level of output which has routinely overproduced.”
– 35% – compared to other members – 25% on Meanwhile, he added: “With Saudi unlikely to
average. utilise any of its additional 500,000-bpd wiggle
Abu Dhabi National Oil Co. (ADNOC) has room for the time being, allowing other mem-
embarked on a $122bn four-year programme bers to add around 1.1mn bpd to the market
which is designed to help it raise output capac- from May next year seems like a deal worth
ity to 5mn bpd by 2030, with the company this making to maintain co-operation.”™

P12 www. NEWSBASE .com Week 29 22•July•2021