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On April 14, 2020, a 3D printed oil pump jack is shown in front of a stock graph and the Opec logo in this illustrative photo. REUTERS/Dado Ruvic/Illustration/File Photo REUTERS/Dado Ruvic/Illustration/File Photo (Reuters) – LONDON, July 5 (Reuters) – The United Arab Emirates and Saudi Arabia have fought on how OPEC+ producers unwind oil output cuts, prompting a third day of meetings on Monday in an economic spat. find out more WHY DOES IT MATTER? Crude is already at its highest level since October 2018, trading at more over $76 per barrel and up more than 40% year to date. These prices, as well as the possibility of a rise, are raising concerns about inflation, which could stymie the economy’s recovery from the pandemic and complicate matters for central banks as they try to keep interest rates low enough to support the recovery while avoiding an inflationary bubble from forming. In June, the US Federal Reserve stunned investors by signaling that it would raise rates and stop buying emergency bonds far sooner than expected, while the US administration has expressed concern about rising oil prices. OPEC+ members are also concerned that non-member the United States would increase output and take market share because present prices make shale oil production profitable. WHAT ARE THE POSSIBLE RESULTS? 1) INCREASE AND EXTENSIONSSaudi Arabia, OPEC’s top producer, is among those who want output raised in stages by a total of 2 million barrels per day (bpd) between August and December, followed by an extension of remaining cuts until the end of 2022, rather than the current plans to cut until next April. The UAE has objected to the extension, but if it is approved, oil prices might rise even more, particularly for contracts further along the futures curve. 2) ONLY INCREASE The UAE has stated that it is willing to accept a 2 million bpd increase in output until the end of 2021 while deferring discussions on extending the agreement beyond April 2022, a position that Saudi Arabia has so far rejected. If passed, this proposal could push oil prices higher in the short term, especially as analysts have predicted that the proposed rise will keep the oil market in deficit due to rising demand. If the UAE remains dissatisfied and refuses to engage in an extension, this situation might spell difficulties for the OPEC+ accord. 3) THERE WILL BE NO CHANGESI If the group fails to reach an agreement, sources say the group could maintain the 5.8 million bpd restrictions in place until the accord expires in April 2022. This might be one of the most bullish scenarios, resulting in a significant increase in oil prices. This option may be rejected by Russia, which is eager to increase output. COLLAPSE (n.d.) (n.d.) (n. Individual producers could unilaterally increase output in a drive to reclaim market share if the OPEC+ accord falls apart. The existing agreement is effective until the end of April 2022, making this a very unlikely situation. According to sources, the situation is different than it was in March 2020, when the alliance’s collaboration crumbled due to a failure to agree on additional supply cuts. The agreement was slated to expire at the end of March at the time, and the group’s failure to reach an agreement led to the group pumping at maximum capacity in April, pushing oil prices to all-time lows. Ahmad Ghaddar and Rania El Gamal contributed reporting, and Jason Neely edited the piece. The Thomson Reuters Trust Principles are our standards./nRead More

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