The core of Monday’s proposal was to increase oil production by two million barrels per day between August and December. OPEC + also plans to continue the production cut of 10 million barrels per day by eight months, from April 2022 to December.
Fang’s dilemma
The emirates agree with countries such as Saudi Arabia and Russia that production must increase, but not the distribution of the increase internally in the oil cartel. In October 2018, the United Arab Emirates’ oil production was 3.160 million barrels per day. By April 2020, their production capacity had risen to 3.841 million barrels per day.
The Emirates wants to plan to increase production capacity to 5 million barrels per day in 2030. Increasing market share while being within OPEC will be difficult for the Emirates to maneuver. If they emphasize increased market shares – and to utilize its increased production capacity – more than price can, the emirates follow in Qatar’s footsteps to withdraw from OPEC.
Perhaps the most fundamental purpose of OPEC is to keep oil investment in check. The purpose is being pushed by the United Arab Emirates’ increased investment in oil capacity. Ahead of Monday’s failed meeting, the Minister of Energy stated:
– I think we all agree that we must do something with the production. The problem is to attach conditions to the increase. Relying on the production level from 2018 is unfair.
Intense diplomacy
Oil analyst at DNB Markets, Helge André Martinsen, does not think the OPEC countries will be allowed to negotiate in peace much longer. In its analyzes, the bank estimates that Brent oil will reach USD 80 if production is not increased. This is justified by a global supply of oil that is only getting lower and lower in relation to demand.
Without increased OPEC production, the oil market will tighten and oil prices will rise. Large consumers of oil will hardly accept that imports become more expensive as a result of the increased oil price, according to Martinsen.
– In the coming days, we will see increased diplomatic activity not only within, but also from outside OPEC. The cartel will feel pressure from large oil consumers such as China, the USA and India, and will not let prices skyrocket, says Martinsen.
He also believes that the lack of an agreement will also be a blow to OPEC’s self-image as a stabilizer for the oil markets.
– No one knows what – if they happen at all – compromise OPEC will come to. Until that happens, just sit back and watch oil prices rise.
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