OPEC+ Meeting Finally Fails... International Oil Prices Surpass $75 for the First Time in 3 Years

WTI Over $76, Brent Crude Over $77... Approaching $80
Saudi Arabia and UAE Conflict Deepens... Differences Over COVID-19 Outlook

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] International oil prices recently surged past the $75 mark, reaching their highest level in three years and approaching $80 per barrel. This sharp rise is attributed to the final breakdown of talks among OPEC Plus (OPEC+), the coalition of major oil-producing countries including the Organization of the Petroleum Exporting Countries (OPEC) and Russia, amid conflicts between Saudi Arabia and the United Arab Emirates (UAE). The two countries are unusually clashing over differing outlooks on the future oil market in the wake of the COVID-19 pandemic. Some analysts suggest that accumulated diplomatic tensions between the two nations may prolong the conflict.

On the 5th (local time), West Texas Intermediate (WTI) crude oil prices closed at $76.34 per barrel on the New York Mercantile Exchange (NYMEX), up 1.57% from the previous session. This is the first time WTI prices have exceeded $75 per barrel since October 2018. Brent crude oil traded on the London ICE Futures Exchange also rose 1.27% to $77.11 per barrel compared to the previous day.

International oil prices surged as the OPEC+ ministerial meeting held that day ended in failure without even scheduling the next meeting. The conflict between Saudi Arabia, the largest oil producer within OPEC+, and the UAE, the third-largest producer, led to the collapse of the production agreement after the UAE opposed the extension of the production increase plan agreed upon by OPEC+ member countries.

According to CNN, on the 2nd, OPEC+ oil-producing countries voted on extending the existing production cut plan from April next year to December next year, an eight-month extension, but the meeting ended without agreement due to UAE's opposition. Although the meeting was scheduled to resume via video conference, it was canceled without any agreement.

Suhail Al Mazrouei, UAE Energy Minister, said in an interview with CNBC that "The UAE is willing to support short-term production increases but wants better terms for extending the plan until the end of next year," adding, "If the deadline for easing production cuts is extended, the production baseline used to determine the cut volume must also be reviewed." Since the UAE has previously cooperated with Saudi Arabia, the leading country in OPEC+ and the dominant power in the Arab League, the UAE's opposition is considered highly unusual by the international community.

On the surface, the main cause of the conflict between the two countries is analyzed to be their differing economic outlooks based on the future COVID-19 situation. According to the Wall Street Journal (WSJ), John Kilduff, a specialist at commodity investment firm Again Capital, said in an interview that "COVID-19 had united oil-producing countries, but as the pandemic appears to be ending, that unity is breaking down," and "The UAE is more optimistic about the COVID-19 situation and believes the production cut standards should be eased."

Some also predict that resolving the accumulated tensions between Saudi Arabia and the UAE will not be easy, as various conflicts have occurred between the two countries over time. Al Jazeera pointed out that "Relations between the UAE and Saudi Arabia began to deteriorate after the UAE withdrew most of its troops from the war between the Yemeni Houthi rebels and the Saudi-led Arab coalition in 2019," and added, "Saudi Arabia's unilateral easing of sanctions on Qatar starting in January and its independent lockdown measures citing the risk of the COVID-19 Delta variant without consulting neighboring countries are also factors contributing to the conflict."