UAE insists on Opec+ quota revision if deal extended

The UAE supports an immediate Opec+ agreement to boost crude oil production from August, minister of energy Suhail al-Mazrouei said, but will continue to push back against plans to extend the agreement to the end of 2022 if it remains tied to "outdated" production quotas.

"We cannot extend the agreement or make a new agreement under the same conditions," al-Mazrouei said in a televised interview with CNBC today. "We have the sovereign right to negotiate that."

Opec+ ministers adjourned after two days of talks on 2 June without an agreement on how to set production levels beyond July, despite widespread acknowledgement among its members of the need to cool the market amid rising prices and strengthening demand.

The coalition largely coalesced around a proposal that would see it raise production quotas by 2mn b/d by the end of the year, while also extending the two-year agreement beyond its current April 2022 expiry through to the end of that year.

But while almost all of the 23 members of the Opec+ alliance gave their backing to the proposal, the coupling of the output increase and extension under this single proposal proved too much for the UAE.

The ministry of energy issued a statement today saying was not against the idea of extending the agreement, but only if the "outdated" October 2018 baseline production reference largely being used by participants was reviewed.

"Some of the countries have been given references of plus double-digits, and we have been given minus two," al-Mazrouei said pointing to the fact that it is now withholding a larger percentage of its production relative to its capacity compared with others in the group. "That is totally unfair."

Any decision on extending the deal should be made at a later meeting, "allowing an immediate unconditional decision on increasing production from August to progress," he said.

The production baselines represent the level from which individual country quotas and compliance are calculated. When the current deal was struck last year, most participants were assigned their October 2018 production as their reference levels, while Russia and Saudi Arabia were each given a baseline of 11mn b/d.

The UAE has long complained about its own levels, as it continues to invest in expanding its upstream production capacity. Saudi Arabia's 11mn b/d baseline is equivalent to 91pc of its current capacity, while Russia's is 106pc of its capacity. By contrast, the UAE's 3.2mn b/d baseline is only around 83pc of its now near 4mn b/d capacity after recent upstream investments. State-owned Adnoc, which accounts for the vast majority of UAE output, says it can now produce more than 4mn b/d.

Al-Mazrouei agreed to the baseline to get the deal over the line in 2018, even though it "not a good deal for the UAE", he said today, adding that an extension of the agreement until the end of 2022 based on those dated parameters was "just not realistic".

The UAE is now asking for its reference production level to be revised to reflect its April 2020 output, a period when no restraints were in place, and therefore more reflective of each country's production capacity. Argus estimates that the UAE produced near 3.85m b/d last April, so using that as a baseline would a substantially lift from its current 3.168mn b/d.

But that request failed to secure much backing from others in the Opec+ group over fears that an acceptance of the UAE's demands would trigger lengthy and difficult renegotiations of baselines for other members in the group, some of whose capacity cannot be fully verified.

Opec+ ministers will now reconvene at 15:00 Vienna time tomorrow in the hope of thrashing out a deal that can be backed by all parties.

By Adal Mirza