Connect with us

Hi, what are you looking for?


OPEC’s lost its team spirit

OPEC’s historic output agreement may be teetering on the edge of collapse. It wouldn’t be in the interest of a single cartel member, but then nor was letting that last deal implode in March. Ignoring the risk of another breakdown seems blinkered.

What was meant to be a pretty straightforward meeting of the Organization of the Petroleum Exporting Countries (OPEC) broke up spectacularly on Monday. So they pushed back a gathering with their OPEC+ allies from Tuesday to Thursday in order to allow themselves more time to try to reach agreement internally first.

It’s hard to believe things are so tense given there appeared to be little argument over the need to delay a planned tapering of the output cuts while economies are still roiled by the coronavirus. Adding 1.9 million barrels a day of supply to the market from the start of January would be a reckless gamble given the recovery in oil demand remains patchy. Bloated stockpiles of crude and refined products need to be drawn down before pumping more oil.

The disagreement is more fundamental to the group’s inner workings. It appears to hinge on conditions demanded by the United Arab Emirates that OPEC’s de facto leader, Saudi Arabia, finds unacceptable: That all the countries that have failed to comply with their targets so far continue to make up for it next year.

It’s no secret that the UAE is unhappy with its own output quota, which it regards as tougher than those imposed on fellow members, and that it’s eager to utilize more of its newly installed production capacity before oil demand starts to wane again.

The real sticking point is its demand that those non-compliant countries continue to make deeper compensatory cuts next year. And that’s a long list, which includes Iraq, Russia, Gabon, Nigeria, and Kazakhstan.

On the surface, it’s difficult to see why that’s contentious. Saudi Arabia’s Energy Minister Abdulaziz Bin Salman has been at the forefront of insisting on compensation cuts from laggards. He very publicly reprimanded his Emirati counterpart, Suhail Al-Mazrouei, for the UAE’s own overproduction in July and August. And that seems to be part of the problem. The Emiratis quickly made up for their transgression with deeper cuts in September and October, but others failed to do so. Now it appears Saudi Arabia is willing to give them a free pass.

Keeping Russia and Iraq on board with the deal, even if they’re not fully complying, may be better than losing them altogether by pushing them too hard. Russia, by far OPEC’s largest external ally, hasn’t even been asked to acknowledge its over-production, let alone compensate for it.

The longer it goes on, this latest OPEC+ deal, for all the dressing up with full compliance and compensation cuts, is starting to look like the OPEC deals of old, where the rich countries of the Arabian Peninsula carried a disproportionate share of the burden, while their poorer partners often ignored their own quotas.

The UAE maybe just may be getting tired of its support for the status quo being taken for granted.

The current wisdom among traders and analysts is that a compromise will be found. The OPEC+ meeting’s delay certainly suggests that’s what they’re trying to do. But that view seems based, at least in part, on an assumption that the group will do almost anything to avoid a repeat of the collapse of the previous deal in March.

However, the risk of the deal breaking down, though perhaps relatively small, is not negligible and the price of failure is huge. Last time the OPEC+ deal collapsed, crude prices soon followed as producers opened the taps to compete with each other for markets. Setting aside West Texas Intermediate’s brief, but spectacular dive below zero, prices still went as low as $10 a barrel.

The slump may not be as severe a second time around. Demand isn’t collapsing, coronavirus vaccines are on the way and producers may still show some restraint, even without an agreement. But a drop of $10-$15 a barrel is easily possible.

Nobody thought the first OPEC+ deal would fall apart — until it did. And nobody seems to think this one will collapse either. Let’s hope they’re right. 


Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.
Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!



A Chinese flag is seen on the top of a car near a coal-fired power plant in Harbin, Heilongjiang province, China Nov. 27, 2019....


Microsoft Corp’s near-acquisition of social media app TikTok last year was the “strangest thing I’ve ever worked on,” Chief Executive Officer Satya Nadella said...


U.S. cryptocurrency markets and related platforms will “not end well” if they stay outside the purview of regulators, according to Securities and Exchange Commission...


Apple Inc’s customers will have to wait for a few more weeks to lay their hands on the new iPhone 13 as supply chain...


The East Asia and Pacific region’s recovery has been undermined by the spread of the COVID-19 Delta variant, which is likely slowing economic growth...


Restaurants continue to operate in limited capacity amid the lockdown. — PHILIPPINE STAR/ MICHAEL VARCAS By Beatrice M. Laforga, Reporter THE PHILIPPINE economy likely...

You May Also Like


Having a good Instagram marketing agency to back up your Instagram account is an absolute must going into the new year. With competition stronger...


Ivermectin, an existing drug against parasites including head lice, has had a checkered history when it comes to treating COVID-19. The bulk of studies...


As a traditionally rigid insurance industry becomes bogged down by antiquated processes and operations, a handful of industry leaders are seeking to shake things...


US President Joseph R. Biden, Jr., will rely on ally countries to supply the bulk of the metals needed to build electric vehicles and focus on...

Disclaimer:, its managers, its employees, and assigns (collectively "The Company") do not make any guarantee or warranty about what is advertised above. Information provided by this website is for research purposes only and should not be considered as personalized financial advice. The Company is not affiliated with, nor does it receive compensation from, any specific security. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. Any investments recommended here should be taken into consideration only after consulting with your investment advisor and after reviewing the prospectus or financial statements of the company.

Copyright © 2021 SmartRetirementReport. All Rights Reserved.

Get the daily email that makes reading the news actually enjoyable. Stay informed and entertained, for free.

Your information is secure and your privacy is protected. By opting in you agree to receive emails from us. Remember that you can opt-out any time, we hate spam too!