Members of the Organization of Petroleum Exporting Countries (OPEC) and their allies within the "OPEC Plus" alliance postponed their summit aimed at setting production quotas for the month of August, from yesterday, Thursday, to today, Friday, while expectations indicated a slight increase in prices.
The group of 13 members of OPEC, led by Saudi Arabia, held a first meeting via video link, and it was supposed to meet with its allies, the ten oil-producing countries led by Russia, which together with OPEC members form what is known as the “OPEC Plus” alliance before the meeting was postponed.
Crude prices have returned to levels last recorded in October 2018, which usually supports views in favor of increased production.
India, the world's third-largest crude consumer, urged "OPEC Plus" to end the production cut regime in stages and allow prices to decline, at a time when inflation pressure threatens to derail economic recovery.
production increase controversy
And Bloomberg News Agency quoted sources involved in the negotiations as saying that the UAE objected at the last minute to the initial agreement reached by Saudi Arabia and Russia regarding a gradual increase in production.
Sources said that Saudi Arabia and the UAE - who are traditional allies - failed to settle their differences regarding future plans for the production of oil by the countries of the "OPEC Plus" group, so that the meeting of the advisory committee of the grouping ended without reaching an agreement.
The sources added that the committee will hold a meeting on Friday in an attempt to settle differences and reach an agreement, according to what Bloomberg quoted the French news agency as saying.
And Bloomberg had quoted other sources, earlier yesterday, as saying that the ministerial advisory committee of the assembly agreed to recommend a gradual increase in production until the end of this year, which paves the way for the 23-nation grouping to reach an agreement on production plans for the coming months, in light of Oil prices have risen to their highest level in more than two years.
Bloomberg News quoted one of the participants in the negotiations as saying that the ministerial advisory committee of the “OPEC Plus” grouping, which includes Russia and Saudi Arabia, recommended increasing production by 400,000 barrels per day each month during the period from August to next September.
The committee also proposed extending the period of commitment to the “OPEC Plus” agreement on reduced oil production until December 2022.
It is possible that the “OPEC Plus” countries will pump millions of barrels daily into the market as long as the need exists.
It is noteworthy that oil prices rose by about 50% from their level at the beginning of this year, with the recovery of energy demand as a result of the decline in the repercussions of the emerging Corona virus pandemic, exceeding the increase in production by OPEC Plus countries during the past months after the significant production cut in April of last year.
uncertainty
Angolan Oil Minister Diamantino Azevedo, who currently holds the presidency of OPEC, said at the opening of the meeting earlier that oil demand is expected to increase strongly in the second half of the year, but "it is not appropriate to lower our guard."
"The Corona virus continues to claim lives, thousands of lives every day," he added.
He added that the new "Delta" mutation and the high number of infections in many countries "are bleak reminders of the uncertainty that is still lingering."
The coalition has voluntarily reduced oil production since 2016 to maintain price stability, especially since the Corona epidemic last year reduced global demand for oil.
And since April 2020, millions of barrels of crude have not been mined intentionally, which is a sound strategy, which BVM analyst Stephen Brennock notes, "has been absolutely correct so far."
After declining at the beginning of the spread of Corona, oil prices rebounded to about $ 75 a barrel for the two reference contracts, Brent North Sea and West Texas Intermediate.
Next, oil traders expect that "OPEC Plus" will maintain its overall strategy, while many are looking for a slight increase of about 500,000 barrels per day as of August.
"This would be a compromise solution that the Gulf states in the cautious OPEC and partners like Kazakhstan and Russia, which tend to raise production, might find acceptable," Brennock said.
The “OPEC Plus” countries are already benefiting from the increase in prices, but if they rise significantly, this will encourage competitors to resort to resources that are not included in the production quotas imposed by the alliance.
Fouad Razakzadeh of ThinkMarkets considered that the coalition is wondering whether the gradual increase in supply should be continued, as Saudi Arabia recommends, or more strongly, as Russia demands.
Corona mutants and sanctions on Iran
“There appears to be a mismatch between the two main countries in the alliance, Russia and Saudi Arabia, on whether to increase production in August. If so, by how much?" says Commerzbank analyst Eugene Weinberg.
Although Russia wants to pump more oil, the outbreak of the "delta" mutant could limit demand in many parts of the world, including Russia itself, which has seen a record number of deaths in the last three days.
The Secretary-General of the Organization of the Petroleum Exporting Countries, Muhammad Barkindo, spoke of the "lingering doubts" that hang over oil markets while chairing a technical meeting on Tuesday to prepare for the summit.
Since December, the "OPEC Plus" countries have met every month to adjust their strategy as much as possible with the latest developments.
These countries are also following political developments regarding Iran, the main member of the organization, which is subject to a US-led embargo hampering its oil sector, while talks are trying to salvage the international agreement on the Iranian nuclear agreement concluded in 2015, which may eventually allow Iran to increase its exports significantly, the matter It may force other major oil producers to adjust their production levels.