The Organization of Petroleum Exporting Countries (OPEC) + made its third attempt on Monday, but was unable to reach an agreement and cancelled plans to hold a meeting, making the supply and demand situation in the oil market more tense than expected.
Delegates at the meeting said that after several days of intense talks, Saudi Arabia and the UAE were still unable to resolve the heated dispute; since the information was not disclosed, people familiar with the matter requested anonymity. Since no agreement has been reached, OPEC+ will continue to implement current production restrictions. As oil demand gradually recovers after the pandemic, it is difficult for the global economy to obtain additional energy supplies. OPEC Secretary General Mohammad Barkindo said in a statement that the alliance was unable to agree on the timing of the next meeting.
The collapse of the talks failed to reach an agreement. The most immediate impact is that OPEC+ will not increase production in August, which means that at a time when oil demand is rapidly recovering from the impact of the pandemic, it is difficult for the global economy to obtain additional energy supply.
After the news broke, international oil prices rose, continuing to reach new highs in the past three years. As of press release, WTI crude oil futures rose 1.56%, and Brent crude oil futures rose 1.30%.
“If no agreement means maintaining current production levels, oil prices will soar,” said Jason Bordoff, director of Columbia University's Center for Global Energy Policy. “But that's not enough, because soaring oil prices will actually hurt the interests of the UAE, Russia, and Saudi Arabia.”
At 17:42 London time, the price of crude oil rose 1.3% to $77.12 per barrel.
According to previous media reports, the OPEC+ organization has agreed in principle on plans to gradually increase production and extend production reduction agreements to cope with the potential impact of the COVID-19 pandemic on energy demand. However, the UAE's firm opposition brought the conference process to a standstill, and the country demanded that production benchmarks be adjusted to obtain more production quotas. “The UAE supports an unconditional increase in production, as required by the market.” UAE Energy Minister Suhail Al-Mazrouei (Suhail Al-Mazrouei) said, “There is no need to take the decision to extend the agreement until the end of 2022. We have 8 to 9 months left in this agreement to discuss this issue at a later stage.”
This result can be described as a major failure for OPEC+. The relationship between OPEC's two core member countries has deteriorated to such an extent that it is difficult to reach a compromise. This has damaged the organization's image as a responsible oil market manager, and has also brought about the possibility of an internal price war.
The group's data shows that as oil consumption continues to recover, once high oil inventories have fallen back to average. Barkindo said last week that demand in the second half of the year will be 5 million b/d more than in the first half of the year.
“The growing differences between Riyadh and Abu Dhabi over foreign, economic and security policies and the oil policy itself will complicate future OPEC discussions,” said Amrita Sen of London consulting agency Energy Consultants Ltd. “The supply in the physical goods market is already very tight. If production does not increase in August, the price of oil can easily break through $90 per barrel.”
The differences between the UAE and Saudi Arabia have also raised questions about the relationship between the two countries. The two countries have long been among the strongest allies within OPEC. Analysts pointed out that Russia's entry and the resulting formation of more OPEC+ alliances with member countries have weakened the relationship between the UAE and Saudi Arabia.