Here’s the problem with oil and its cartel OPEC and its 10-non member coalition (OPEC+), an organization geared at organizing the flow and prices of the commodity on the world market.
With COVID-19 still remaining a growing force grinding to a near halt global businesses, transport, and tourism, demand for fuel for transport and industry is low.
In recent weeks, OPEC+ members have looked to maintain production cuts at about 7.7 million barrels per day (bpd), roughly 8% of global supply off-line for a little longer.
But in fact, between May and October, participants in the OPEC+ agreement pumped 2.346 million barrels more than allowed under the pact.
The offender was mostly Iraq, but at different times it was other countries who surpassed their quotas because their economies depended on it.
Now, this is all coming to a showdown on November 30th. And the UAE has just about had enough.
Oil prices have really failed to rebound to the level that most OPEC members need them to, with Brent around $44, intensifying the predicament that most OPEC members find themselves in.
Most of OPEC’s members have budgets that rely heavily on oil income, which was reduced by falling oil prices, and by their required production cuts in an effort to rebalance the oversupplied market and hold prices at acceptable levels.
Recently rumors surfaced that the UAE was contemplating the pros and cons of their OPEC membership and is said to be having discussions internally about its OPEC cooperation, according to Energy Intel.
After a day of public silence following press reports the nation was considering its position in OPEC, Energy Minister Suhail Al-Mazrouei said Thursday the UAE “has always been a committed member.”
The UAE has suggested that all OPEC members should first comply with their existing production quotas before even considering an extension of those cuts, according to Energy Intel.
UAE officials are also questioning the country’s long-term interest in continuing as an OPEC member.
Some in the UAE also believe, as does Russia, that the OPEC production cuts lift oil prices enough to encourage US shale, a fierce and resilient competitor.
The alliance is clearly fragile, and the collapse of the deal earlier this year when markets were flooded with oil is proof. If the UAE were to break ranks, others would surely follow.
OPEC leader Saudi also has grievances with non-compliant members after shouldering more than its share of cuts to keep the group’s compliance near acceptable levels.
Saudi has indicated that it will no longer perform this duty for the group.
The cartel’s November 30th and December 1st meetings are tasked with setting the production goals for 2021.
The 23-nation alliance had intended to ease some of the unprecedented supply curbs introduced in May to offset the collapse in demand, restoring 2 million barrels a day of output at the start of next year. They made a similar increase over the summer as the global economy recovered, and hoped that the trend would continue.
A failed deal could mean that the world will again be flooded with oil.
Oil prices steady
Oil prices firmed on hopes OPEC and its allies will delay a planned increase in oil output and after Pfizer said its COVID-19 vaccine was more effective than previously reported.
Members of OPEC+ are leaning towards delaying the current plan to boost output in January by 2 million barrels per day (bpd), sources have said. They are considering a possible delay of 3 or 6 months.
Prices were also supported by a smaller-than-expected increase in U.S. crude stockpiles last week and prices have held firm since.
2020 Demand lower
OPEC has lowered its 2020 oil demand forecast to -9.8 million barrels per day (mbpd), OPEC’s secretary-general, Mohammad Sanusi Barkindo has confirmed in a statement via video conference at the 24th meeting of the JMMC on November 17.
The number marks a drop of 0.3 mbpd from the group’s October meeting and a reduction of 11 mbpd against a growth of 1.2 mbpd that was expected back in January, Barkindo highlighted. He also noted that the group has revised down expected growth for 2021 to 6.2 mbpd. This figure previously stood at 6.5 mbpd.