In March last year, oil cartel Opec+ “held a disastrous meeting in which it failed miserably to reach an agreement”, says John Authers on Bloomberg. Oil prices subsequently plunged. This month “Opec+ has held another disastrous meeting in which it failed miserably to reach an agreement”.
The result? Prices have risen. Brent crude oil prices have soared above $77 a barrel, the highest level since October 2018. US oil benchmark WTI briefly hit $76.98 a barrel, a seven-year high.
Saudi Arabia and the UAE fall out
The Opec+ cartel brings together major oil producers such as Saudi Arabia, Russia, Iraq and the United Arab Emirates (UAE). The group controls 50% of global oil output, and tries to keep prices stable. Opec+ found itself “staring into the abyss” last year, says Tom Holland of Gavekal Research.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
A Saudi-Russian price war, combined with Covid-19 lockdowns, saw prices plunge. US futures briefly went below zero. To rescue the market, Opec+ members agreed to cut their joint output by ten million barrels per day (mbpd) compared with pre-pandemic levels (equivalent to roughly 10% of global production).
The group has since eased those curbs, but it is still pumping six mbpd less than it did pre-pandemic. The group had been expected to agree to further output hikes in the months ahead, but talks failed. Markets are betting that supply will thus remain tight and that prices could head towards $100 a barrel.
The quarrel came from an unexpected source. The UAE, traditionally a close ally of Saudi Arabia, has been resisting Saudi plans to keep some production curbs in place through to the end of next year. The UAE says it is only willing to agree if its own production quota can be raised. We have “sacrificed the most, making one-third of our production idle for two years”, energy minister Suhail Al Mazrouei told CNBC.
There is more to the dispute than money, says Al Jazeera. Riyadh and Abu Dhabi are at odds over foreign policy. Saudi economic pressure on Emirati free zones, “areas in which foreign companies can operate under light regulation”, is another bone of contention.
Opec is “sitting pretty”
Traders are getting carried away, says Holland. The two Gulf allies may “patch up their disagreement” before too long. With prices surging, other Opec members will also be more tempted to cheat on their agreements and pump extra oil on the sly.
Opec’s “purpose is to get as much money as it can for its oil”, adds Authers. Disharmony in the group should really mean cheaper oil. A more quarrelsome Opec means oil markets may be more volatile, but “it would be risky to bet… that this meeting” heralds much higher oil prices.
Don’t bet on a price plunge either though, says George Hay on Breakingviews. The market is likely to remain in deficit until the end of 2022 thanks to “surging crude consumption”. High prices are also not tempting US shale producers into the market as before: “Climate change and profitability concerns are deterring listed oil groups from ramping up output.” For all the “squabbling”, Opec is “sitting pretty”.
-
How taking a two-year career break could leave a £26k hole in your pensionCareer breaks are increasingly common but it is important to take steps to protect your pension, as gaps compound over time
-
Cash in on your attic: Thousands could be sitting dormant in your storageSelling your valuables at auction could be far more lucrative than you think. We take a look at how auctions work, and some tips to help you maximise your profits
-
Why is the supply of oil rising?The supply of oil is rising despite conflict in the Middle East. What's causing the increase?
-
What's next for oil prices?
How are world economies affecting oil prices and the demand for oil?
-
How to profit from high oil pricesTips The price of oil looks set to remain high for the foreseeable future - and could yet go a lot higher as demand outstrips supply. Rupert Hargreaves picks the best ways to invest for rising oil prices.
-
Oil price keeps rising despite Opec+ production riseNews The price of oil reached $120 a barrel this week, despite Opec+ saying it would raise production by 648,000 barrels a day.
-
Think the oil price is high now? You ain’t seen nothing yetAnalysis The oil price has been on a tear in recent months. Dominic Frisby explains why oil in fact is still very cheap relative to other assets.
-
The surging oil price will hurt – but it also creates opportunitiesAnalysis The price of oil is at its highest since 2008. That's bad news for most people – but it also means opportunities for investors, says John Stepek.
-
Oil price races higher as demand reboundsNews Supply constraints, increased demand and the Russian threat to Ukraine are sending the oil price racing towards $100 a barrel.
-
Oil price hits seven-year high after Abu Dhabi attackNews The oil price hit a seven-year high after Houthi rebels in Yemen staged a drone attack on an oil storage site in Abu Dhabi.
