[ad_1]
The OPEC negotiations are always a tactical dance, but the footwork is looking more delicate than usual after Monday’s cartel meeting failed to make a decision on whether to extend oil production cuts into next year.
Now a formal call is expected on whether to keep the taps turned on Tuesday, the last day of a two-day meeting of the Organization of the Petroleum Exporting Countries and its Russian-led allies, a grouping known as OPEC +.
But before the members met, there were growing signs of discontent within the fragile alliance.
“OPEC has always been a very black box,” Samantha Gross, director of the Brookings Institution’s Climate and Energy Security Initiative, told Al Jazeera. “I think they like it that way. I think it’s part of the game. They use that to their advantage and therefore remain shrouded in mystery until tomorrow. “
Yet it’s no mystery that oil prices have come under heavy pressure this year as the coronavirus pandemic churns global demand for crude.
After prices plummeted earlier this year, the alliance reached a landmark deal in April to cut production by 7.7 million barrels per day (bpd), about eight percent of global supply.
As part of that original deal, the taps were to start reopening in January, and the group increased target production by 1.9 million bpd.
But the forecast on which that call was made is now woefully out of date.
A new wave of COVID-19 infections sweeping through Europe and the United States has led to further restrictions and trade closures weakening the outlook for oil demand. If OPEC + loosens the taps as planned in January, Rystad Energy estimates that there will be a new surplus of 200 million barrels through May in world oil markets.
That’s bad math for state budgets reeling from the double whammy of coronavirus restrictions and falling oil prices, which explains why the alliance is expected to extend production cuts through the first quarter of 2021. .
“It is not just about doing the right thing for the oil market. He is doing well for his results: to be able to maintain an obligation to his citizens, to be able to keep the lights on in his country, “Louise Dickson, an analyst at Rystad Energy, told Al Jazeera.
Alegría’s energy minister, who currently holds the rotating presidency of OPEC, said on Monday that the cartel reached a consensus to extend the cuts by three months. That would bolster the status quo in pricing, analysts say, while a six-month extension would help eliminate excess storage and raise prices significantly.
But the devil is in the details. And after a sharp rebound last week on positive news about the coronavirus vaccine, oil prices came under pressure again on Monday. World benchmark Brent crude for January delivery fell 59 cents to settle at 47.59 a barrel, while US benchmark West Texas Intermediate crude fell 19 cents to settle at $ 45.34 a barrel.
An oil storage tank of the Russian pipeline monopoly Transneft is displayed in the Baltic Sea port of Ust-Luga, Russia [File: Vladimir Soldatkin/Reuters]Spoilers, players, and exempted
OPEC + has always been a thorny alliance dominated by Saudi Arabia and Russia. But in the run-up to this week’s meeting, reports of discontent emerged among smaller members, notably Iraq, Kazakhstan and the United Arab Emirates (UAE).
After Bloomberg News reported that the United Arab Emirates, OPEC’s third-largest producer, was privately questioning whether to remain in the alliance, the country’s energy minister reaffirmed the UAE’s commitment to the group.
“The alliance is in danger of falling apart,” Dickson told Al Jazeera. “If the United Arab Emirates left OPEC, they would increase their production potential and could get it back to 3.5 million bpd.”
There are also rumors emanating from Iraq, OPEC’s second largest producer.
The country’s Deputy Prime Minister Ali Allawi reportedly said during a virtual conference last week that he is no longer willing to accept the alliance’s “one-size-fits-all” approach to production cuts and wants them included. elements such as per capita income and sovereign wealth funds. pumping quotes for individual members.
The depths of Iraq’s financial struggles were highlighted last week after Bloomberg News reported that Baghdad was seeking an advance payment of roughly $ 2 billion for crude shipments.
Dickson says Iraq, and Russia for that matter, may be seeking greater leniency for members who exceed quotas.
“Part of their strategy of making noise is to let the overproduction slide,” he said. “Everyone is trying to get the best possible deal.”
The skyline, including the Burj Khalifa tower, is seen as ships dock at Port Rashid in Dubai, United Arab Emirates. [File: Ahmed Jadallah/Reuters]
OPEC + member Kazakhstan has also indicated that it wants to boost production in the new year.
“Kazakhstan is an interesting case too, because Russia could easily influence them,” continued Dickson. “The alternative view is that Russia wants to leave [of the cuts] and they have asked Kazakhstan to start the fire, but I don’t think it is likely. “
Meanwhile, Iran and Venezuela are exempt from OPEC + cuts due to the devastating impact that US sanctions and internal political conflicts have had on their oil industries.
Libya has also been exempt, though that could change with the country rapidly increasing its oil production following a historic ceasefire agreement between warring groups.
[ad_2]
