OPEC+ will resume talks on Monday after failing to reach a deal on oil output policy for a second day running on Friday because the United Arab Emirates blocked some aspects of the pact. The standoff could delay plans to pump more oil through to the end of the year to cool oil prices that have soared to 2-1/2 year highs.
Without a deal, the OPEC+ alliance could keep tighter restraints on output with oil prices now trading around $75 a barrel, more than 40% up this year. Consumers want more crude to aid a global recovery from the COVID-19 pandemic.
The rise in oil prices is contributing to global inflation, slowing the economic recovery from the coronavirus crisis. OPEC+, which groups the Organization of the Petroleum Exporting Countries, Russia and their allies, voted on Friday to increase output by around 2 million barrels per day (bpd) from August to December 2021 and to extend remaining cuts to the end of 2022, instead of ending in April 2022, OPEC+ sources said.
The UAE agreed to releasing more oil into the market but refused to support the extension of the cuts. Talks resume on Monday, OPEC+ said in a statement.
Responding to oil demand destruction caused by the COVID crisis, OPEC+ agreed last year to cut output by almost 10 million bpd from May 2020, with plans to phase out the curbs by the end of April 2022. Cuts now stand at about 5.8 million bpd.
If the UAE blocks a deal, the remaining cuts would likely stay in place, although there is a slim chance the pact could fall apart and all countries could pump as much as they wanted. Alternatively, the group could agree to increase output to the end of 2021 but postpone discussion about extending the deal beyond April 2022. OPEC+ sources said UAE had proposed this.
OPEC+ sources said the UAE complained that its baseline - the level from which any cuts are calculated - was originally set too low, an issue it raised before but was ready to tolerate if the deal ended in April 2022 but not if it went on longer.
OPEC+ sources said the UAE wanted to have its baseline production set at 3.84 million bpd versus 3.168 million bpd now. The UAE has ambitious production plans, investing billions of dollars to boost capacity. The OPEC+ pact has left about 30% of UAE capacity idle, sources familiar with UAE thinking say.
The UAE argued that it was not alone in requesting a higher baseline because other countries such as Azerbaijan, Kuwait, Kazakhstan and Nigeria had requested and received new baselines since the deal was first agreed last year.
In the build up to this week's meetings, OPEC+ sources had said Russia was insisting on releasing more oil to the market as the rise in prices was encouraging the growth of rival US shale output - which tends to need higher prices to be economic.
OPEC's leader Saudi Arabia took a more cautious approach, saying fewer barrels should be released given uncertainties that remained about the course of the pandemic because of variants of the coronavirus that were causing new outbreaks.
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