The Gulf’s next allies have publicly disagreed on how quickly production is increasing amid the recovery from the global pandemic.
The UAE Energy Minister has said that the world’s major oil producers have reached a “full agreement” to modestly increase production from August, ending a confrontation that exposed a growing economic rivalry between the oil-rich nation and its rich neighbor Saudi Arabia.
Sunday’s announcement signaled a breakthrough at a standstill in which OPEC +, a group of 23 members of the world’s leading oil producers and allies, would proceed after limiting production last year as oil prices they fell in the midst of the coronavirus pandemic.
As the pandemic hit global consumption, transport and supply chains, OPEC + decided last year to withdraw 9.7 million barrels a day (bpd) from the market and gradually restore supplies by the end of April 2022.
On Sunday, members agreed to increase production by 400,000 (bpd) each month from August to help drive a global economic recovery as the pandemic subsides, the Vienna-based group said in a press release .
The group will “assess market developments” in December, he said.
The agreement also extends the deadline to limit production from April 2022 to the end of 2022, a provision requested by Saudi Arabia.
Saudi and UAE economic dispute
Although OPEC + has gradually increased production since May, Abu Dhabi had been baffled by the Saudi proposal to extend reduced production until the end of 2022.
In a rare challenge in Riyadh, the United Arab Emirates considered the deal proposed earlier this month to be “unfair,” leading to a stalemate plaguing oil markets.
The unusual public dispute seemed to underscore an emerging rivalry between the Gulf allies for a long time as they both try to diversify their economies amid a long-term distancing from the oil industry. Both countries have indicated desires to become the de facto business center of the region.
The UAE had hoped that by increasing its production in the short term (as the world economy recovers from the coronavirus pandemic), it could increase the revenue needed to support its economic diversification plans.
Saudi Arabia has warned that too much growth could put downward pressure on prices, stifling investment and causing supply problems later.
To overcome the disagreement, OPEC + agreed on new production quotas for several members from May 2022, including the United Arab Emirates, Saudi Arabia, Russia, Kuwait and Iraq.
The global adjustment will add 1.63 million bpd to supply as of May next year, according to Reuters news agency calculations.
The UAE will see its benchmark production, from which cuts are being calculated, increase to 3.5 million barrels per day from May 2022, from 3.168 billion today.
Saudi Arabia and Russia will see their baselines increase to 11.5 million barrels per day each from the current 11 million.