OPEC’s brawl over oil production intensified on Monday when talks between the group and its non-member producers, led by Russia, went nowhere for a third day.
That saw oil prices rise with driven higher after OPEC+ nations called off talks on output levels, meaning no deal to boost production has been agreed.
The current production cap remains in place until the end of this month.
Brent was up $US1, or 1.3%, at $US77.16 a barrel early Tuesday in Asia, trading around 2-1/2 year highs while US West Texas Intermediate was up $US1.11, or 1.5%, to $US76.27 a barrel in holiday trading.
The rises will push Australian oil shares higher in Tuesday trading.
OPEC+ ministers abandoned the talks and have not set a new date for a resumption.
The inconclusive meeting came after last Friday’s discussions (the meetings are all virtual) when the United Arab Emirates rebuffed a proposed eight-month extension to output curbs.
OPEC+ has been gradually easing the output cap, but the UAE objected to and then blocked a plan on Friday to lift output by about 2 million barrels a day (bpd) from August to December 2021 and to extend the pact on a series of gradual output shifts to the end of 2022.
That set off an argument with OPEC giant, Saudi Arabia which on Monday changed tariffs and other trade rules in a challenge to the UAE and force then to negotiate. That seems to have backfired with the UAE maintaining its tough-minded approach to a new deal.
Saudi Arabia revised the tariffs that previously governed its imports from fellow Gulf Cooperation Council countries, aiming to deal a blow to the United Arab Emirates’ position as the Gulf’s primary trade and business hub – especially Dubai.
Complicating matters is the feeling that the UAE and especially Dubai are ‘close’ to Iran with trade and finance deals being conducted with that country via banks and other groups in the Emirates, to the concern of the Saudis and in breach of US sanctions imposed by former President Trump.
According to Reuters, Saudi Arabia changed its rules on imports from other GCC countries to exclude goods made in free zones or “using Israeli input” from preferential tax breaks. Those changes are aimed directly at the UAE and Dubai.
The UAE and Israel normalised relations last year, and struck a tax treaty in May to encourage economic cooperation between the nations.
The prospect of OPEC+ not adding the extra barrels to the market next month boosted prices on Monday but has added more volatility to the market and threatens to take it back to post 2014 times when prices collapsed and OPEC struggled to maintain a semblance of unity.
ING Economics said OPEC+’s failure to come to a deal may provide some brief upside to oil prices but said “it could also signal the beginning of the end for the broader deal, and so the risk that members start to increase output.,” according to Reuters.
Prince Abdulaziz bin Salman, energy minister of Saudi Arabia, the biggest oil exporter in OPEC, called on Sunday for “compromise and rationality” to secure a deal.
The standoff coincides with uncertainty about the course of the pandemic and concerns about the spread of the Delta variant of the coronavirus in the US, UK, Europe, Indonesia, Japan, Australia and other countries.
