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The standoff between UAE and Saudi Arabi has kept the oil price floating around $75. Any failure to reach a deal could potentially shoot the oil price resulting in major inflation and derailing the efforts of economic recovery.
Oil price is currently hovering around $75 as the world awaits some key decisions from OPEC+ leaders. The rising tensions between Saudi Arabia and the UAE have led to severe indecision among OPEC+.
The OPEC+ has failed to reach a conclusion on its oil output policy after two meets last week. The next one will now happen later today on Monday, July 4. At press time, Brent Crude is trading 0.5% up at $76.34 while the US crude futures is trading 0.15% up at $75.28.
Factors that Provoke Oil Price Changes
A failure to reach a deal could probably put pressure on the economic recovery. Furthermore, it can lead to a major surge in global oil prices. During the last Friday’s meet, the United Arab Emirates (UAE) reportedly blocked some aspects of the deal.
This friction can further lead to the derailment of reaching a consensus to pump more oil by the end of the year. These measures will help to cool down the staggering rise in oil prices recently. As of today, oil prices have soared to a 2.5-year high. The recent surge in oil prices has been fueling inflation. Thus, it could potentially affect the economic recovery as well.
As the global markets are showing signs of getting back on track post the COVID-19 pandemic, the consumer demand for crude has surged simultaneously. If the deal fails, the POCE+ will continue to maintain strong restrictions on the supply.
Last Friday, OPEC+ – including Russia and its allies – voted unanimously to increase the oil output to 2 million barrels per day from August to December 2021. This group also agreed on extending the remaining cuts to the end of 2022, previously April 2022. The UAE has agreed to increase the oil supply in the market. However, it has refused to support the extension of the cuts.
Saudi Arabia Is Pushing Back on UAE Opposition
UAE’s oil market rival Saudi Arabia has pushed back the opposition coming from UAE while calling for “compromise and rationality”. Speaking to its state-owned-media on Sunday, July 4, Saudi Energy Minister Prince Abdulaziz bin Salman said:
“The extension is the basis and not a secondary issue. You have to balance addressing the current market situation with maintaining the ability to react to future developments … if everyone wants to raise production then there has to be an extension”.
While denying the extension of cuts, the UAE has pointed out the baseline production references. The baseline is the levels from which any cuts are calculated and the UAE said that it is already too low for them. Thus, the UAE has called for the review of the baseline references. This standoff could potentially derail plans to cool down the oil prices.
The Saudi energy minister said that “Big efforts were made over the past 14 months that provided fantastic results and it would be a shame not to maintain those achievements. …Some compromise and some rationality is what will save us”.
“We are looking for a way to balance the interests of producer and consumer countries and for market stability in general, especially when shortages are expected due to the decrease in stockpiles,” he added.
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