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Organization Of The Petroleum Exporting Countries Plus (OPEC+)

Organization Of The Petroleum Exporting Countries (OPEC+) Plus:

The United Arab Emirates (UAE) pushed back against a plan by the Organization of the Petroleum Exporting Countries (OPEC+) Plus group to extend the global pact to cut oil production beyond April 2022.

The Output Pact & Fluctuating Oil Price:

  • The OPEC+ group of countries had, in April 2020, entered into a two-year agreement (Output Pact), which entailed steep cuts in crude production to deal with a sharp fall in the price of oil as a result of the Covid-19 pandemic.
  • The price of Brent crude hit an 18-year low of under USD 20 per barrel in April 2020 as economic activity around the world crashed as countries dealt with the pandemic.
  • In November 2020, the prices started rising and in July 2021, they were USD 76.5 per barrel mainly due to the steady rollout of vaccination programmes around the world.
  • OPEC+, however, maintained lower levels of production despite crude oil prices reaching pre-Covid levels, with Saudi Arabia, notably, announcing a further cut in production of 1 million barrels per day for the February-to-April period, which helped boost rising prices even further.
  • The OPEC+ group ran into sharp criticism from developing economies, including India, for deliberately maintaining low supply levels to raise prices.
  • In April, OPEC+ agreed to gradually increase crude production, including a phased end to Saudi Arabia’s 1 million barrel per day cut in production by July.
  • UAE agreed that there was a need to increase crude oil production from August 2021, but did not agree to a condition by the OPEC Joint Ministerial Monitoring Committee (JMMC) that the two-year production agreement be extended by six months.
  • The UAE’s key objection to the existing agreement is the reference output used to calculate the total production apportioned to each oil-exporting country.
  • The baseline production level reference used in the current agreement was not reflective of the UAE’s production capacity and, therefore, led to the UAE being apportioned a lower share of total production of crude oil.
  • UAE would be open to extending the agreement if baseline production levels were reviewed to be fair to all parties.

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