Oil Supplies: Threat of destructive infighting looms among OPEC+ members

*As a dispute between core members blocks deal to increase output, observers say what happens next in the coming days would determine whether the breakdown of talks, pushing Crude price to $80 per barrel could escalate into a bitter and destructive conflict with possible consequences for consumers

Alexander Davis | ConsumerConnect

The Organisation of Petroleum Exporting Countries (OPEC) and its allies (OPEC+) have been plunged into a deepening crisis, following what has been described as “a worsening fight” between Saudi Arabia and United Arab Emirates (UAE) blocked an oil-supply increase.

Agency report stated what happens next would determine whether the breakdown of talks, which sent Crude climbing towards $80 a barrel, could escalate into a conflict as bitter and destructive at last year’s price war.

It was learnt what is at stake is the stability of the global economic recovery amid growing inflationary pressures, as well as the ability of the producers’ alliance to retain its hard-won control over the oil market.

From international oil majors to Middle Eastern petrostates, the market will be watching keenly in the coming days as Riyadh and Abu Dhabi publish prices and negotiate volumes for their August crude supplies.

The fear that events could spiral further out of control was evident.

Iraq’s Oil Minister Ihsan Abdul Jabbar said: “We do not want a price war.

“And we do not want oil prices to rise to more than the current levels.”

Despite several days of tense talks, the Organisation of Petroleum Exporting Countries and its allies abandoned their meeting Monday, July 5, 2021, according to report.

A disagreement over how to measure production cuts upended a tentative deal to boost output and swiftly devolved into an unusually personal and public spat between Saudi Arabia and the UAE.

The last time those two countries clashed over oil policy, in December 2020, the UAE floated the idea of leaving the cartel.

It was gathered that dispute ended in a truce, but the breakdown in negotiations this time around was so severe that the group could not even agree on a date for its next meeting.

However, the immediate consequence of the collapse in talks is that the output hike expected for August this year will not take place, leaving the market short of barrels just as the global economy recovers from the COVID-19 pandemic.

In response, crude jumped above $77 a barrel in London for the first time in more than two years.

“With the oil market already in deficit and supply growth lagging oil demand growth,” the continuation of existing OPEC+ production limits is likely to send prices higher, said Giovanni Staunovo, a commodities analyst at UBS Group AG.

Over the medium term, the split could potentially have the opposite effect, bringing lower prices as countries jockey for position and start pumping more.

The probability of this is low, Staunovo stated.

Consumer pressure

Major consumers were paying attention to the cartel’s failure. Within hours, the administration of US President Joe Biden urged the group to get its act together, Bloomberg report said.

Administration Spokesperson disclosed that the White House is “closely monitoring the OPEC+ negotiations and their impact on the global economic recovery.

“Administration officials have been engaged with relevant capitals to urge a compromise solution that will allow proposed production increases to move forward.”

In this regard, the Americans may find allies within the cartel, report noted.

OPEC+ has already been reviving some of the crude supplies it halted last year in the initial stages of the pandemic. The 23-nation coalition decided to add about 2 million barrels a day to the market from May to July, and the question before ministers on Monday was whether to keep going in the coming months.

The cartel’s own data show that once-bloated oil inventories are back down to average levels as the recovery in fuel consumption continues.

Nigerian-born Mohammad Barkindo, Secretary-General of OPEC of recent said that demand in the second half will be five million barrels a day higher than in the first six months of the year.

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