UAE-Saudi Agrees To End Oil Dispute, Prices To Fall – Free PDF Download

What has happened?

• The United Arab Emirates energy minister has said the world’s leading oil producers have reached a “full agreement” to modestly boost output from August,
• Ending a standoff that laid bare a growing economic rivalry between the oil-rich nation and itswealthy neighbour Saudi Arabia.
• The announcement on Sunday signalled a breakthrough in an impasse over how OPEC+, a 23-member grouping of the world’s leading oil producers and allies,
• Would proceed after limiting output last year as oil prices plummeted amid the coronavirus pandemic.

What is this whole issue?

• The OPEC+ group of countries had, in April 2020, entered into a two-year agreement, which entailed steep cuts in crude production to deal with a sharp fall in the price of oil as a result of the Covid-19.
• The price of Brent crude hit an 18-year low of under $20 per barrel in April 2020 as economic activity around the world crashedas countries dealt with the pandemic.
• The initial production cut by OPEC+ was about 10 million barrels per day or about 22% of the reference production of OPEC+ nations.
• In November 2020, however, the price of Brent crude started climbing consistently and has, now, risen to $76.5 per barrel —Up from about $40 per barrel at the end of October — buoyed by the steady rollout of vaccination programmes around the world. OPEC+,
• However, maintained lower levels of production despite crude oil prices reaching pre-Covid levels,
• With Saudi Arabia, notably, announcing a further cut in production of 1 million barrels per day for the February-to-April period, which helped boost rising prices even further.
• The OPEC+ group ran into sharp criticism from developing economies, including India, for deliberately maintaining low supply levels to raise prices.
• Petroleum Minister Dharmendra Pradhan had even said the high price of crude oil was slowing down the economic recovery ofdeveloping economies post the pandemic.
• In April, OPEC+ agreed to gradually increase crude production as prices reached $64.5 per barrel including a phased end to Saudi Arabia’s 1 million barrel per day cut in production by July.

UAE’s objection

• The UAE’s key objection to the existing agreement is the reference output used to calculate the total production apportioned toeach oil-exporting country.
• The UAE noted that the baseline production level reference used in the current agreement was not reflective of the UAE’s production capacity and, therefore, led to the UAE being apportioned a lowershare of total production of crude oil.

• Energy Minister Suhail Al-Mazrouei said, it’s “sacrificing” its production to a greater extent than other OPEC+ members.
• The UAE noted that the baseline reference production levels were unfair and that it would be open to extending the agreement if baseline production levels were reviews to be fairto all parties.

So what has been agreed now?

• To overcome the disagreement, OPEC+ agreed on new output quotas for several members from May 2022, including the UAE, Saudi Arabia, Russia, Kuwait and Iraq.
• The overall adjustment will add 1.63 million bpd to supply from May next year.
• On Sunday, members agreed to raise output by 400,000 (bpd) each month from August.
• The UAE will see its baseline production, from which cuts are being calculated, increase to 3.5 million bpd fromMay 2022 from today’s 3.168 million.
• Saudi Arabia and Russia will see their baselines rise to 11.5 million bpd each from the current 11 million.
• The grouping will “assess market developments” in December, it said.
• The deal also extends a deadline on capping output from April 2022 to the end of 2022, a provision sought by Saudi Arabia.

Impact on oil price?

• The truce between the two long-time allies will ease a looming supply squeeze and reduce the risk of an inflationary oil price spike.

• Also the unusually public spat between both the countries appeared to underscore an emerging rivalry between the longtime Gulf allies,
• As both seek to diversify their economies amid a longer-term shift away from the petroleum industry.
• Both countries have indicated desires of becoming the de facto business hub in the region.

Q) Crude oil is primarily composed of hydrocarbons (80%). Which is next important component of crude oil?

1. Sulfur
2. Oxygen
3. Hydrogen
4. Nitrogen

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