OPEC and its allies met on Sunday in a final effort to unblock a deal to increase production between Saudi Arabia and the United Arab Emirates has been resolved.
Officials have said privately in recent days that a full meeting would only be called if a deal was in reach.
A truce would open the way to more oil coming onto the market, easing a looming squeeze and averting an inflationary price spike. It would also put an end to a diplomatic spat that has unnerved oil traders, as the fight between the two long-time allies risked unravelling the boarder OPEC+ accord that’s underpinning the recovery in crude prices.
Saudi Energy Minister Prince Abdulaziz bin Salman welcomed ministers to the meeting on Sunday, using, as he often does, a Hollywood reference.
“Instead of ‘I am back,’ we will say ‘we are back.'”
On the table is a new version of the deal OPEC+ discussed two weeks ago: monthly increases of 400,000 barrels a day from now until September 2022 and an overall agreement lasting until the end of next year. It would also include new output quotas for the UAE and potentially others, according to delegates.
The UAE expects its baseline – used to calculate supply curbs – to be revised to around 3.5 million barrels a day. according to one delegate. That compares with 3.2 million before, and the UAE’s request to go as high as 3.8 million. Iraq also expects a new baseline, another delegate said.
Crucially, OPEC+ plans to say that despite those quota revisions, it would not add more than 400,000 barrels a day each month, the delegates said. It’s still unclear how the group would achieve that.
The UAE has been arguing that the way its quota is calculated is unfair. To make its point, the country blocked a deal that the rest of the cartel had agreed to earlier this month.
The spat has been unusually public, and the tensions go beyond oil diplomacy amid growing economic rivalry between Abu Dhabi and Riyadh. As the ministers of each country used media interviews to make their case, memories were stirred of the 2020 price war, and Abu Dhabi’s veiled threat later that year to leave the alliance.
The collapse of talks earlier this month briefly sent crude to a six-year high in New York. It dropped last week to around $72 a barrel.
“We don’t think there’s as much of a risk of oil breaching the $80 mark now we have this agreement coming up,” Fahd Iqbal, head of Middle East research at Credit Suisse Group AG, said in an interview with Bloomberg Television on Sunday.
Since the start of last week, there have been growing signs of a provisional agreement that would give the UAE a more generous output quota. Ministers from Saudi Arabia, the UAE and their Gulf allies met online on Saturday to discuss the matter, delegates said, asking not to be named because the information isn’t public.
“Over the past year it has become increasingly clear that a necessary if not sufficient condition for OPEC+ cohesion is alignment between not only Russia and Saudi Arabia, but also the UAE,” said Bob McNally, president of Rapidan Energy and a former White House official, predicting a deal would be done. “Odds favour success.”
If there is a deal on Sunday, it is unclear how quickly additional supplies can be delivered to the market. August sales volumes are largely locked in and most Gulf countries are preparing for an Islamic holiday that will close government offices and businesses for most or all of next week.
Without extra output from OPEC+, the International Energy agency has warned that the oil market will “tighten significantly,” potentially damaging the economic recovery.