Following the resolution of a dispute between Saudi Arabia and the UAE, the Organisation of the Petroleum Exporting Countries (OPEC) and its allies reached an agreement on Sunday, under which they will gradually add oil supplies to the market.
Under the pact, OPEC+ — which comprises OPEC and its allies Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan — will boost output by 400,000 barrels per day (bpd) each month, said a Bloomberg report. This schedule will take off in August and continue till all the halted output of OPEC+ is revived.
A statement from the group said the latest arrangement will give Saudi Arabia, the UAE, Iraq, Kuwait and Russia higher baselines from May 2022. Their production cuts are measured from these baselines.
How the truce helps
Bloomberg said the UAE-Saudi truce will ease a looming supply squeeze, which in turn will bring down the risk of an oil price spike.
The 19th OPEC and non-OPEC Ministerial Meeting has commenced via videoconference under the Chairmanship of HRH Prince Abdul Aziz Bin Salman, Saudi Arabia’s Minister of Energy and Co-Chair HE Alexander Novak, Russian Deputy Prime Minister, together with … pic.twitter.com/RyjMQIpMj8
— OPEC (@OPECSecretariat) July 18, 2021
Further, it is expected to end a diplomatic row that had left traders anxious, it said. The two nations are long-time allies and a spat between them might have impacted the broader accord between OPEC and its allies. This accord is crucial for a recovery in crude prices, it added.
“OPEC+ is here to stay,” Saudi Energy Minister Prince Abdulaziz bin Salman is quoted as having told media persons after the meeting. Calling consensus-building “an art”, he said the group will continue to meet on a monthly basis to monitor market recovery.
Further, Prince Abdulaziz said the baseline adjustments will not alter the pace of the 400,000 bpd monthly output increases, which are expected to come into effect in 2022.
An ‘unusual’ spat
The Bloomberg report said the row had been public in a manner that was unusual in West Asia. Both Saudi and UAE ministers made their cases over media interviews. They often touched upon the 2020 Saudi-Russia price war as well as past threats from the UAE to quit the cartel, it said.
The agreement is likely to give consumers a clear view of how quickly OPEC+ restores the 5.8 bpd production it is still withholding, said the report. The move to withhold production followed its decision last year to make deep cuts as the pandemic began to spread. It also addresses grievances that threatened OPEC+ unity since late 2020, the report added.
“The UAE is committed to this group and will always work with it,” Energy Minister Suhail Al-Mazrouei reportedly told media persons after the meeting. He further expressed his gratitude to Saudi Arabia and Russia for keeping OPEC+ together.