Last week, members of the OPEC cartel and allied oil producing countries broke off in the midst of a standoff with the United Arab Emirates over oil production levels. Oil markets were left in a state of temporary uncertainty whilst demand for fuel continued to recover. Most OPEC members agreed to an increase from August of 400,000 barrels/day but the UAE also wanted an increase in its own permitted production quota. UAE is currently producing around 2.7 million barrels per day under the OPEC Plus agreement, despite averaging around 3 million a day between January 2019 and March 2020.
Analysts suggest the country can easily produce up to 4 million a day but would require that Saudi Arabia reduce their oil output to reach the OPEC Plus reduction of oil supply to prevent the collapse of oil prices. Saudi Arabia, the de-facto head of the OPEC, rejected the UAE’s proposal fearing the precedent for other members to follow suit. However, both countries are dependent on oil revenue to keep their economies buoy that have been ravaged due to the pandemic and reduced oil prices. Due to the pandemic’s hit to global demand for oil, gasoline for public transport and jet fuel for flying, unused barrels of oil have quickly filled up storage reserves and drove down energy prices. Currently, the OPEC Plus alliance is producing 37 millions barrels per day, falling drastically compared to around 43 million barrels per day in April last year.
The lock of agreement leaves oil markets in a state of fragility, particularly given the historical non-compliance that has plagued the alliance. However, without new rounds of talks, oil prices are continuing to rise. Crude Oil prices have risen 1.5% to $US76.32/barrel on the New York Exchange, whilst international Brent crude oil rose 1.3% to $US77.20/barrel.
