DUBAI, United Arab Emirates — The Organization of Petroleum Exporting Countries (OPEC) and its non-OPEC allies reached a deal Sunday to phase out 5.8 million barrels per day of oil production cuts by September 2022 as prices of the commodity hit their highest levels in more than two years.
Coordinated increases in oil supply from the group, known as OPEC+, will begin in August, OPEC announced in a statement .
Overall production will increase by 400,000 barrels per day on a monthly basis from that point onward. The International Energy Agency estimates a 1.5 million barrel per day shortfall for the second half of this year, indicating a tight market despite the gradual OPEC supply boost.
OPEC+ agreed in the spring of 2020 to cumulatively cut a historic nearly 10 million barrels per day of crude production as it faced a pandemic-induced crash in oil prices. The alliance gradually whittled down the cuts to about 5.8 million barrels per day.
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The 19th OPEC and non-OPEC ministerial meeting noted that worldwide oil demand showed “clear signs of improvement and OECD stocks falling, as the economic recovery continued in most parts of the world” thanks to accelerating vaccination programs.
International benchmark Brent crude is up 43% year-to-date and up more than 60% from this time last year, with many forecasters expecting to see oil trading at $80 a barrel in the second half of 2021. Brent closed at $73.59 a barrel at the end of the trading day on Friday.
The agreement followed a temporary but unprecedented gridlock that began in early July and saw the United Arab Emirates reject a coordinated oil production plan for the group spearheaded by its kingpin, Saudi Arabia. While the 13-member organization has seen disagreements before, this was the first public rift between the UAE and Saudi Arabia, which are close allies.
Abu Dhabi had demanded that its own “baseline” for crude production — the maximum volume it’s recognized by OPEC as being able to produce — be raised because this figure then determines the size of production cuts and quotas it must follow as per the group’s output agreements. Members cut the same percentage from their baseline, so having a higher baseline would allow the UAE a greater production quota.
Sunday’s agreement revealed baseline increases for four of OPEC’s member states and one non-OPEC state beginning in May of 2022: the UAE, Saudi Arabia, Iraq, Kuwait, and Russia, the last of which is not an OPEC member but a leader of OPEC+. The UAE’s baseline for oil production will be raised from 3.16 million barrels per day to 3.5 million barrels per day, though short of the 3.8 million it reportedly initially requested . Saudi Arabia’s baseline will be increased from 11 million to 11.5 million barrels per day.
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Abu Dhabi’s support for the deal was evident in the opening statement from Emirati Energy Minister Suhail Al Mazroui.
“We appreciate the constructive dialogue we had with his highness and OPEC,” Al Mazroui told journalists on a press call Sunday, referring to Saudi Energy Minister Prince Abdulaziz bin Salman. “I confirm that the UAE is committed to this group and will always work with it and within this group to do our best to achieve the market balance and help everyone. The UAE will remain a committed member in the OPEC alliance.”
Russian Energy Minister Alexander Novak said in a written statement to the Saudi minister that “We are ready to support anything said by you.”
Asked how the UAE and Saudi Arabia managed to reach their compromise, the Saudi minister remained reserved, resisting several attempts by members of the press to glean more details on the negotiations.
“Why should I divulge it? This is an art and we keep it between ourselves,” Abdulaziz bin Salman said during Sunday’s conference call. “We call it a state secret. Consensus building is an art… without spilling our state secret, I’ll keep it this way.”