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Opec+ defers output decision amid UAE standoff
7/2/2021 12:00:00 AM

Today's meeting of Opec+ ministers has adjourned without a production policy recommendation, amid an ongoing standoff with the UAE. The group will reconvene at 15:00 Vienna time (13:00 GMT) on 5 July.
During two days of talks on 1-2 July, the coalition discussed gradually increasing its collective crude production quota by 2mn b/d by the end of the year, with the ceiling to be raised by 400,000 b/d in each month of the August-December 2021 period. The proposal also includes extending the current two-year output restraint agreement beyond its April 2022 expiry to the end of next year, with an aim to fully unwind the group's remaining production cut by September 2022, barring any downturn in market conditions. Production adjustments would continue to be monitored over monthly meetings.
A formal decision on the proposal has been postponed until next week after the UAE refused to back extending the restraint agreement to the end of next year unless production baselines are reviewed. No deal has been formally struck, according to three delegates.
The increase to quotas — designed to temper a projected supply deficit in the second half of the year — gained widespread support when it was discussed by the Opec+ Joint Ministerial Monitoring Committee (JMMC) yesterday, but the proposal to extend the deal was met with stiff resistance from the UAE, forcing the talks to run into a second day.
The UAE — a long-time ally of Opec de facto leader Saudi Arabia — made its support for a deal extension conditional on a review of production baselines. The baselines represent the level from which individual country quotas and compliance are calculated. When the current deal was struck last year, most deal participants were assigned their October 2018 production as their reference levels, while Russia and Saudi Arabia accepted baselines of 11mn b/d. The UAE asked for its reference production level to be rebased to April 2020 output, a period when no restraints were in place. But that request failed to secure consensus.
Russia has recommended a 1-2 day review period for the UAE to consider its position. One delegate said that the UAE delegation would likely consult with its government.
Drop that baseline
Rejigging baselines to April 2020 would substantially raise the UAE's reference level from its current 3.168mn b/d. Argus estimates that the UAE produced near 3.85m b/d last April. That month fell between the previous restraint deal and the current one, and saw Saudi Arabia and Russia wage a fleeting war for market share. This pushed all producers with spare capacity to raise output — including the UAE, whose production can now exceed 3.8mn b/d, according to the IEA.
The proposed quota increases will help temper a projected supply deficit in the second half of the year. Earlier this week, the Opec+ Joint Technical Committee (JTC) studied a base case scenario in which demand grows by 5.95mn b/d this year and non-Opec supply rises by 840,000 b/d. This would take OECD commercial stocks to 27mn bl below their 2015-19 average by the end of the second quarter, to 95mn bl below by the close of the third quarter, and to 126mn bl below by the end of the year, according to the JTC's projection.
Source: Argus
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