OPEC leaders Saudi Arabia and UAE might have reached a so-called solution to the current export quota conflict, but it is far from over, say oil market watchers. The high-profile clash between Saudi Crown Prince Mohammed bin Salman and Abu Dhabi Crown Prince Mohammed bin Zayed is not over. Instead, it’s just been pushed aside for the moment.
For both parties, a more volatile oil and gas market is not the goal, as both pursue a stable situation where prices stay at a level that is acceptable for both producers and consumers.
For two weeks, the global oil market was shocked by the strong position taken by Abu Dhabi’s power brokers, which demanded higher baseline production quota. OPEC sources now have stated that both countries have reached a compromise on production.
Even that the first reactions to the so-called agreement which includes a higher base line production level for the UAE are positive, the deal in reality is nothing more than a band aid. Officials in many oil importing nations are hoping that the agreement will help to cool soaring prices.
Reuters reports indicate that Riyadh has agreed to Abu Dhabi’s request to have its baseline production level lifted to 3.65 million barrels per day (bpd) when the current pact expires in April 2022, according to the source. The current baseline for the UAE was around 3.17 million bpd.
Battling COVID-19’s economic impact, high unemployment, and the ongoing threat of energy-transition polices in the EU and OECD, a growing amount of countries want accelerate the monetization of their hydrocarbon resources. The UAE-Saudi spat is only a precursor to future problems within the cartel.
Saudi Arabia knows that Abu Dhabi continues to invest in increasing its production capacity, which it aims to boost to around 5 million bpd by 2030. The increases in production capacity are likely to become a point of contention within OPEC during the next couple of years.
With the global economic recovery picking up pace, and with oil demand on the rise, there is room for more production, but new conflicts within OPEC, and diverging production strategies could well be on the horizon.