Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

OPEC+ Impasse: What That Means For Oil Prices, Production Going Forward

By Ellen R. Wald, Ph.D.CommoditiesJul 08, 2021 05:34AM ET
www.investing.com/analysis/opec-impasse-what-that-means-for-oil-prices-production-going-forward-200590348
OPEC+ Impasse: What That Means For Oil Prices, Production Going Forward
By Ellen R. Wald, Ph.D.   |  Jul 08, 2021 05:34AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

OPEC+ delivered a surprise to the oil market last week when it failed to reach an agreement to increase oil production at its monthly meeting. The market was expecting the group to agree to a proposal to raise production by 400,000 bpd in August and to continue to increase by that amount every month through the end of 2021.

WTI Weekly TTM
WTI Weekly TTM

The cartel was also looking to extend its current agreement on quotas beyond its April 2022 expiration date to the end of 2022.

And that's where the trouble started.

The United Arab Emirates, which agreed an increase for the summer was warranted, objected to extending the current quota system to the end of 2022 because the basis for that quota were numbers from October 2018.

The UAE felt that it was unfair to use it as a baseline through December 2022. The UAE oil minister argued that since the UAE had expanded its production capacity, requiring it to base its quotas on an outmoded baseline meant the UAE was cutting a larger share of its production than other countries. Therefore, it could not agree to extend the current production quota deal beyond the expiration date set at April 2022.

Saudi Arabia objected to any increase in output without also extending the deal. Saudi oil minister Abdulaziz bin Salman also took issue with the notion that the UAE wants to change its baseline production. He said in an interview:

“You cannot pick a month and say: this is my capacity, so you’ve got to give it to me.”

With Saudi Arabia and the UAE at an impasse, OPEC+ decided to postpone its July meeting indefinitely, meaning the 400,000 bpd production increase was also tabled.

Prices Initially Jump

While the markets in the U.S. were closed on Monday in observance of the 4th of July holiday, both benchmarks moved up at the end of last week. Brent also rose 1.3% on Monday to a close of $77.20 per barrel.

The initial jump in prices can be explained by OPEC’s failure to meet the market’s expectation for a production increase in August. However, the rift between Saudi Arabia and UAE doesn’t mean that the market should expect oil prices to continue rising.

Right now, producers say they are committed to maintaining the production quotas currently in place, but the prospect of a larger rift between Saudi Arabia and the UAE remains.

Spare Capacity Could Be Weaponized

Even though the oil market looks tight at the moment, the fact is that there is actually a great deal of spare capacity that could easily be weaponized.

Saudi Arabia, of course, wields the lion’s share of that spare capacity. It pumped 8.5 million bpd in May, according to S&P Global Platts, but can pump at least 12 million bpd. Saudi Arabia has also recently proved its willingness to unleash that productive capacity when oil negotiations go awry.

Even though there have been no threats to unleash oil production and drive prices down, the specter of this looms large over the market and is already fueling price volatility.

Although the market seemed caught by surprise at the sudden disagreement between Saudi Arabia and the UAE, who have traditionally been partners in the OPEC sphere, this rift had actually been brewing for some time.

In early December 2020, I wrote about the realignment taking place within OPEC and what the UAE’s growing independence and production capacity meant for oil markets.

At that time, I warned that “an empowered UAE is freer to make wise, long-term decisions within OPEC+ without as much concern for the price of oil tomorrow.”

This is what we are seeing play out now. The UAE is looking out for its own long-term interests and will continue to—even if it means rocking the boat on oil prices in the short-term.

OPEC+ Impasse: What That Means For Oil Prices, Production Going Forward
 

Related Articles

OPEC+ Impasse: What That Means For Oil Prices, Production Going Forward

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (6)
Mongolian Hiro
Mongolian Hiro Jul 08, 2021 12:53PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Muktan muktan
Mohamed Abdalla
Mohamed Abdalla Jul 08, 2021 10:16AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Great article.. Whats the expectations now?
Nick Burns
Nick Burns Jul 08, 2021 10:08AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Biden just needs to executive order the US pumps to bring prices down ... no one will like it but its with in his power
Install Expert
Install Expert Jul 08, 2021 10:08AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Yes, this would be inline with a dictatorship. Sounds right up his alley. It's a good thing he shut down the keystone pipeline, just look at how prices at the pump have fallen since January . Maybe if they drop some more I can finally afford to buy that $89 sheet of plywood that cost $17 last year. Smh.
Samuel Samura
Samuel Samura Jul 08, 2021 10:08AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
good
Dave Alexcis
Dave Alexcis Jul 08, 2021 9:22AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Great Article as always. Keep safe!
Arthur Lynn
Hoppel Jul 08, 2021 9:06AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Thank you for sharing your insights.
Data First
DataFirst Jul 08, 2021 7:00AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Michael: you’re impolite and ungrateful. She can write what she thinks. You can agree or disagree without calling name.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email