Oil Flat As UAE Wildcard Puts OPEC Plans At Risk

OPEC+ is set to resume talks today following a day of digging in by the UAE, which opposes as “unfair” the latest production control proposal to extend the cuts until the end of 2022 without baseline adjustments, and a Saudi challenge on Monday morning.

The UAE is seeking an update to the individual quotes for OPEC+ members based on their “current production capacity”, with the Associated Press  reporting that UAE recognizes that the oil market is in “dire need of higher production”. However, while the UAE is not against adding more barrels to global supply this summer, the next 12 months and beyond is an issue.

The UAE has a production capacity of some  4 million bpd but under the OEPC+ deal from last year, its actual output was capped at 2.59 million bpd until the end of 2020, rising to 2.74 million this year.

This is not the first time the UAE has played the wild card in the OPEC+ deck. Last year, OPEC’s third-largest oil producer again opposed plans by the majority, even reportedly considering leaving the oil cartel. Those differences got settled but now the UAE is unhappy again, which suggests it may be suffering from production cut fatigue—a condition that other members of OPEC may not be immune to, either.

The OPEC+ deal was not good for the UAE, oil minister Suhail Al-Mazrouei told CNBC in an interview on Sunday.

“Everyone sacrificed but, unfortunately, the UAE sacrificed the most, making one third of our production idle for two years,” he said, adding “We knew that the UAE position in that agreement was the worst in terms of comparing our current capacity with the level of production. But an agreement is an agreement.”

In the same interview, Al-Mazrouei noted the UAE unconditionally supports the proposal to increase production but when it came to the extension of the deal, he said “we cannot extend the agreement or make a new agreement under the same conditions. We have the sovereign right to negotiate that.”

Meanwhile, Al-Mazrouei’s Saudi counterpart, Abdulaziz bin Salman, called for “compromise and rationality” in response to the Emirati position late on Sunday.

"The extension is the basis and not a secondary issue," bin Salman told the Al Arabiya TV channel, as quoted by Reuters.

"You have to balance addressing the current market situation with maintaining the ability to react to future developments ... if everyone wants to raise production then there has to be an extension."

But by Monday morning, the Saudis had issued their own challenge, moving to amend the Kingdom’s rules on tariffs for imports from GCC countries to exclude goods made in free trade zones, on one hand, and to exclude Israeli input from preferential tariff concessions, Reuters reports.

This is a direct challenge to UAE, the main trade and business hub of the GCC, which has recently normalized relations with Israel and the Saudi amendments exclude any goods containing components made in Israel or manufactured by certain Israeli investors or companies. The amendments also exclude goods made by less than 25% local labor content from the GCC tariff agreement.