Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman Al-Saud speaks during an emergency virtual meeting of OPEC and non-OPEC countries following the coronavirus disease (COVID-19) outbreak in Riyadh, Saudi Arabia, on 9th 2020.

Saudi Press Agency | Reuters

DUBAI, United Arab Emirates – The Organization of Petroleum Exporting Countries (OPEC) and its non-OPEC allies reached an agreement on Sunday to phase out 5.8 million barrels per day of oil production cuts by September 2022 as commodity prices are at their highest in reached more than two years.

The coordinated increase in the group’s oil supply, known as OPEC +, will begin in August, OPEC said in a statement.

From this point on, total production will increase by 400,000 barrels per day per month. The International Energy Agency estimates a deficit of 1.5 million barrels a day for the second half of this year, indicating a tight market despite the gradual increase in supply from OPEC.

OPEC + agreed in spring 2020 to cumulatively cut crude oil production by nearly 10 million barrels a day as it faced a pandemic-induced drop in oil prices. The alliance gradually reduced the cuts to around 5.8 million barrels a day.

The 19th OPEC and non-OPEC ministerial meetings noted that global oil demand “shows clear signs of improvement and decline in OECD inventories as economic recovery continues in most parts of the world” thanks to accelerated vaccination programs.

The international benchmark Brent crude oil is up 43% since the start of the year and more than 60% from that time last year, with many forecasters anticipating an oil price of $ 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.

An unprecedented distance

The deal followed a temporary but unprecedented deadlock that began in early July and resulted in the United Arab Emirates rejecting a coordinated oil production plan for the group led by its lead actor, Saudi Arabia. While the 13-member organization has seen disagreements before, this was the first public rift between the United Arab Emirates and Saudi Arabia, who are close allies.

Abu Dhabi had requested that its own “baseline” for crude oil production – the OPEC-recognized maximum amount it can produce – be increased as this figure then determines the level of production cuts and quotas it will take under the group’s production agreements must adhere to. Members cut the same percentage off their baseline, so a higher baseline would allow the UAE to have a larger production quota.

Sunday’s agreement revealed base increases for four OPEC member states and one non-OPEC state from May 2022: the United Arab Emirates, Saudi Arabia, Iraq, Kuwait and Russia, the latter of which is not an OPEC member but a leader of the OPEC + is. The baseline for UAE oil production will be raised from 3.16 million barrels per day to 3.5 million barrels per day, although the 3.8 million originally requested has not been reached. Saudi Arabia’s base value will be increased from 11 million to 11.5 million barrels per day.

Abu Dhabi’s support for the deal was made clear in the opening statement by the Emirati Energy Minister Suhail Al Mazroui.

“We appreciate the constructive dialogue that we have had with His Highness and OPEC,” Al Mazroui told journalists on Sunday during a press conference, referring to the Saudi energy minister, Prince Abdulaziz bin Salman. “I affirm that the UAE is committed to this group and will always work with it and within this group to do our best to achieve market equilibrium and to help everyone. The UAE will remain a committed member of the OPEC alliance. “

Russian Energy Minister Alexander Novak said in a written statement to the Saudi Minister: “We are ready to support whatever you say.”

When asked how the UAE and Saudi Arabia managed to reach their compromise, the Saudi minister was reluctant and resisted several attempts by representatives of the press to find out more details about the negotiations.

“Why should I reveal it? This is an art and we keep it to ourselves,” said Abdulaziz bin Salman during the conference call on Sunday. “We call it a state secret. Consensus building is an art … without revealing our state secret, I’ll keep it that way.”