OPEC+ Calls Meeting for Sunday After Progress Toward Deal

(Bloomberg) --

OPEC+ has called a meeting on Sunday after the group made significant progress toward resolving a standoff with the United Arab Emirates that had blocked a deal to boost output.

The online conference of ministers is scheduled for 12 p.m. Vienna time, delegates said, although one cautioned that not every minister had confirmed attendance. Ministers from Saudi Arabia, Kuwait, the UAE, Bahrain and Oman met online on Saturday to discuss the matter, delegates said, asking not to be named because the information isn’t public.

OPEC+ officials have said privately in recent days that the group would only meet if a deal was in reach. Already this week, there have been signs of progress between Saudi Arabia and the UAE toward an outline agreement.

Earlier this month, an unusually public spat between the two long-time allies forced OPEC+ to abandon a proposal to boost oil production. The dramatic breakdown in talks left markets in limbo, and raised the prospect that the current OPEC+ accord underpinning the recovery in the oil price could unravel. As the ministers of each country used media interviews to make their case, memories were stirred of the 2020 price war, and later that year Abu Dhabi’s veiled threat to leave the alliance.

The collapse of talks briefly sent crude to a six-year high in New York, although prices have dropped since to trade just below $72 a barrel on Friday. The original proposal -- backed by Riyadh, Moscow and the rest of the group -- would have boosted output in monthly installments of 400,000 barrels a day.

“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 favor success.”

Read: High-Stakes Oil Diplomacy Puts Future of OPEC+ Deal at Risk (1)

Earlier this week, the two sides were nearing a compromise that could give the UAE a more generous output limit next year and allow the rest of the group to raise production.

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 warned on Tuesday that the oil market will “tighten significantly” and potentially damage the economic recovery.

The UAE’s dispute with OPEC+ centers around its demand for a higher production limit next year, in return for backing an extension of the cartel’s current agreement from April 2022 until December 2022.

At the previous OPEC+ meeting, Abu Dhabi asked to reset the baseline for its production cuts to about 3.8 million barrels a day next year, potentially increasing its production limit by more than 600,000 barrels a day.

Last week, the UAE was ready to set its new baseline at 3.65 million barrels a day, one delegate said. Another delegate said that figure was likely to change.

Oil analysts have warned that the UAE’s demand could open a “Pandora’s Box” for OPEC+ as other members seek better terms to redress grievances of their own. Sure enough, Iraq is also pursuing a higher production baseline, according to a delegate, who didn’t specify the number it’s requesting or when it would take effect.

Like the UAE, Baghdad has bolstered production capacity since the OPEC+ accord began with the assistance of international companies.

(Updates with analyst quote)

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