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The energy alliance, often referred to as OPEC+, met via videoconference on Friday afternoon to decide on whether to keep output policy unchanged or to ramp up supply further.
OPEC+ except for the United Arab Emirates agreed to an easing of cuts and their extension to the end of next year, according to Reuters citing an OPEC+ source. The UAE said the extension is conditional to revising its baseline production, Reuters reported.
Oil prices moved on the news, rising slightly Thursday before losing momentum Friday as traders digested the implications. International Brent crude futures traded at $76.03 a barrel, up 0.2% for the session, while U.S. West Texas Intermediate futures settled 7 cents lower at $75.16 a barrel Friday.
The OPEC alliance had agreed in principle to increase supply by 400,000 barrels per day from August to December 2021 in order to meet rising demand, Reuters reported, citing unnamed OPEC+ sources.
OPEC kingpin Saudi Arabia and non-OPEC leader Russia had also proposed extending the duration of cuts until the end of 2022, according to Reuters.
However, Reuters reported that the UAE opposed these plans on the grounds that OPEC+ should change the baseline for cuts, effectively raising its production quota.
“The Abu Dhabi National Oil Company has been investing in new capacity, it’s been taking a more active role in trading,” he said, adding that it has perhaps started operating more like an international oil company than a national oil company. Unlike international oil companies, decisions taken by national oil companies tend to be influenced by the state.
“They look to the future, they see demand for oil continuing to grow in the medium term, they’ve installed more capacity and they want a greater share of that market as we move through the 2020s,” he added.
Analysts at risk consultancy Eurasia Group said they believe the oil producer group is still likely to reach a deal.
“The UAE might be negotiating but it is unlikely to muster courage to risk it all till the very end. It will want to avoid sabotaging an OPEC+ agreement and potentially being blamed for a rise in oil prices that increases global inflation,” the analysts said Friday, noting that the UAE’s own relationship with Asian energy clients could suffer if prices continue to increase.
“While a UAE withdrawal from OPEC+ should definitely not be dismissed, such a decision would be surprising. Such a move would compromise Abu Dhabi’s relationship with Riyadh, its broad positioning in the region, and its ability to build alliances over the long-term. Therefore, compromise appears to be the most likely outcome.”
OPEC+, which is dominated by Middle East crude producers, agreed to implement massive crude productions cuts in 2020 in an effort to support oil prices when the coronavirus pandemic coincided with a historic fuel demand shock.
Led by Saudi Arabia, a close ally of the UAE, OPEC+ has since initiated monthly meetings in a bid to navigate production policy and has already announced plans to increase supply by 2.1 million barrels per day between May and July.
Analysts had expected the energy alliance to raise supply by around 500,000 barrels per day from next month, slightly higher than the reported proposal to increase by 400,000 barrels.
Oil prices have rallied more than 45% year-to-date in the first half of the year, supported by the rollout of Covid-19 vaccines, a gradual easing of lockdown measures and massive production cuts from OPEC+.
U.S. investment banks on Wall Street still see plenty of room left to run in the coming months.
The rosy outlook for oil prices comes as all three of the world’s main forecasting agencies — OPEC, the International Energy Agency and the U.S. Energy Information Administration — expect a demand-led recovery to pick up speed in the second half of 2021.
However, the spread of the delta Covid-19 variant worldwide has exacerbated concerns of a setback to oil demand. Renewed lockdown measures and rising costs have already resulted in slower factory growth in China, for instance.
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