The Organization of Petroleum Exporting countries (OPEC +) made its third attempt on Monday, but failed to reach an agreement and cancelled the plan to hold a meeting, making the supply and demand situation in the oil market even more tense than expected.
Delegates said Saudi Arabia and the United Arab Emirates were still unable to resolve a bitter dispute after days of tense talks, and people familiar with the matter spoke on the condition of anonymity because the information was not made public. In the absence of an agreement, OPEC+ will continue to implement current production restrictions, while oil demand is gradually recovering after the outbreak, but it is difficult for the global economy to obtain additional energy supplies. OPEC Secretary General Mohammad Barkindo said in a statement that the alliance could not reach a consensus on the time of the next meeting.
The most immediate impact of the failure of the talks to reach an agreement is that OPEC+ will not increase production in August, meaning it is difficult for the global economy to gain access to additional energy supplies at a time when oil demand is recovering rapidly from the impact of the epidemic.
After the news, international oil prices rose, hitting a new high in nearly three years. As of press time, WTI crude oil futures rose 1.56%, Brent crude oil futures rose 1.30%.
"if failure to reach an agreement means maintaining current production levels, then oil prices will soar," said Jason Bordoff, director of Columbia University's Center for Global Energy Policy. "but that doesn't make sense, because soaring oil prices actually hurt the interests of the United Arab Emirates, Russia and Saudi Arabia."
Crude oil rose 1.3% to $77.12 a barrel at 17:42 London time.
Earlier, according to media reports, the OPEC+ organization has agreed in principle to gradually increase production and postpone the production reduction agreement to deal with the potential impact of COVID-19 's epidemic on energy demand. However, the meeting was stalled by strong opposition from the United Arab Emirates, which demanded that the production benchmark be adjusted to obtain more production quotas. "the United Arab Emirates supports an unconditional increase in production, which is required by the market." "there is no need to take the decision to extend the agreement until the end of 2022," said Mazroyi, the UAE's energy minister. "We have eight to nine months to discuss this issue at a later stage in this agreement."
This result is a major failure for OPEC+. Relations between the two core members of the OPEC have deteriorated to such an extent that it is difficult to reach a compromise. This undermines the organization's image as a responsible manager of the oil market and raises the possibility of an internal price war.
The group's data show that once-high oil inventories have fallen back to average as oil consumption continues to recover. Barkindo said last week that demand in the second half of the year would be 5 million barrels a day more than in the first half.
"the growing differences between Riyadh and Abu Dhabi on foreign, economic and security policy and oil policy itself will further complicate discussions about the future of the OPEC," said Amrita Sen of Energy Aspects Ltd., a London-based consultancy. "the physical market is already tight, and if we don't increase production in August, oil prices can easily break through $90 a barrel."
The differences between the United Arab Emirates and Saudi Arabia have also raised questions about the relationship between the two countries. The two countries have long been one of the most powerful allies within OPEC. Analysts pointed out that Russia's accession and the resulting formation of more OPEC + alliances among member states have weakened relations between the United Arab Emirates and Saudi Arabia.