UAE Insists OPEC Agreement Hinges on Vaccines, Demand Recovery

By Emmanuel Addeh in Abuja with agency report

Ahead of its March 4 meeting, the United Arab Emirates (UAE) has said the chance of the Organisation of Petroleum Exporting Countries (OPEC) and its allies agreeing to increase crude output by 1.5 million b/d for April will depend on a successful rollout of the COVID-19 vaccines and its impact on demand.

The UAE energy minister, Suhail al-Mazrouei told the Gulf Intelligence quarterly publication, that as the group seeks to lower inventories, the producers should implement a “phased manner” of output increases to meet an expected oil demand uptick.

“Whether the market can absorb an additional 1.5 million b/d of OPEC supply come April will depend on the success of the vaccine rollout, and how that impacts demand recovery.

“We also need to look beyond balancing supply and demand to inventories that may build up during 2021, and we are still trying to reduce those to a normal level,” he said.
OPEC+ ministers, led by Saudi Arabia and Russia, are set to meet on March 4 to decide on production levels for April after recommending at their Joint Ministerial Monitoring Committee meeting on Feb. 3 to hold quotas steady through March, rather than increase output by 500,000 b/d as planned.

Saudi Arabia also voluntarily said it would cut its output by 1 million b/d for February and March. It is not clear if all 1.5 million b/d of the output cuts will be returned all at once for April.

In February and March, Russia and Kazakhstan were given special dispensation to slightly increase their quotas, while all other members agreed to keep their quotas unchanged.

OPEC, Russia and eight other oil-producing allies are gradually easing their historic 9.7 million b/d of output cuts instituted during the worst of the coronavirus crisis in 2020.

For January, the cuts were rolled back to 7.2 million b/d, or roughly 7 per cent of pre-pandemic demand, from 7.7 million b/d in December.

“We have had a better than anticipated start to recovery in January and now expect to see demand back to 2019 levels by the beginning of 2022,” Mazrouei said, adding that, “What is even more critical than prices and a balanced market is ensuring that we continue to incentivise capital investment in new supply to ensure that the volumes are there when demand recovers.”

According to him, all producers need to be careful not to over flood the market. “If not, prices will suffer and so will investment.”

OPEC+ is not now looking at defending its market share, although it expects to regain lost ground once demand recovers to normal levels, Platts quoted the UAE minister noted.

The UAE, OPEC’s third largest producer that has been vocal about pushing for further easing of quotas, wants to boost its compliance to over 100 per cent since it’s a member of the JMMC.

“As an example, the UAE has an installed capacity of more than 4.2 million b/d, but we are working with the group to cut significantly from that volume,” he added.

The minister reiterated the UAE’s commitment to stay in OPEC, despite previous rumblings that the producer wanted to exit the group amid plans to boost its oil output capacity.

“Our benefit is to stay within the group,” he said, adding that he was confident that the investments made in Murban and the efficiency improvements done by ADNOC will enable it to compete because the volumes will be needed.