Oil price that rose steeply on Thursday, started
stumbling on Friday coinciding with the delay in the OPEC+ final outcome.
Although the members of the group put on a unified
front, the sources close to the individual members cite disagreements among
them as the cause for the delay.
It goes without saying the amount of pressure that
the OPEC+ has been put under by the consumers over the rising oil prices; it’s
not something that is happening in normal times; the world is still in the
middle of the once-in-century pandemic – technically; the price of crude oil is
an important cogwheel in the engine of global growth.
The members cannot afford to sweep the growing
concerns of its customers under the carpet; nor can they let the price come
down with a disproportional hike in the output. In these circumstances, in
order to get the balance right, the policy makers of the cartel need the
combination of Einsteinian wisdom and Gandhian patience.
It is already in the public domain that the key
issue – if it’s the only one – is the reluctance of both Russia and Saudi
Arabia to let the UAE increase its baseline from the current level of 3.2
million bpd to 3.8 million bpd – by 16%.
When the position of the UAE was interpreted by some
of the media as the former being opposed to increase the production, it
clarified that the UAE was not against an increase in production to control the
price of crude oil; in short, it doesn’t want the world to confuse the two separate
scenarios.
Although the members of the OPEC+ agree on
production targets at regular intervals, the monitoring process has been a
nightmare for its ‘policemen’ – and then reporting in public who the ‘naughty
boys’ are.
The offenders usually get a slap on the wrist; they just
compensate for it by production cuts - until next time, in most cases if not all.
Russia and Saudi Arabia, meanwhile, may agree on not
revising the baseline for the UAE; they, however, have different views, when it
comes to increasing the production of crude oil; Russia which has a much lower
break-even cost for crude oil can make a hefty profit while cashing on the
current oil price; Saudi Arabia is not in that position as the break-even cost
for Saudi oil is much higher.
To make matters worse, all the members of the OPEC+ are
aware of the existential threat by the US shale producers that could potentially
exploit the chaos in the oil markets and make a swift comeback.
In this context, the member of the OPEC+ will make
yet another attempt to iron out their differences behind the closed doors to put on
a unite front – until their next monthly meeting, of course.
