Market and product

Growing infighting between OPEC+ members could make future meetings on production policy increasingly difficult as the alliance navigates the pandemic recovery, according to a report by Abu Dhabi Commercial Bank.

We expect divisions and compromises to be more common ahead given the large number of participating member countries and their varying country-level objectives and priorities," ADCB said in a Jan. 27 report.

OPEC, Russia and several other key producing countries have begun tapering their historic production cuts instituted in 2020, from 9.7 million b/d in May-July to 7.2 million b/d in January.

But the producer bloc's last meeting on Jan. 4-5 was marked by significant disagreements, with several countries under sever fiscal and demographic pressures lobbying for increases in their quotas, while other members, led by Saudi Arabia, urged continued output discipline to continue supporting the market.

Saudi Arabia eventually announced a unilateral 1 million b/d extra cut for February and March, while Russia and Kazakhstan were granted slight increases to their quotas, and every other member agreed to maintain their January production levels.

ADCB, which is majority-owned by the Abu Dhabi government, cited this "lack of group cohesion" in saying that OPEC+ will find it challenging to reach consensus when it meets again.

A monitoring committee co-chaired by Saudi Arabia and Russia will meet online Feb. 3 to assess member quota compliance and review market forecasts. The full OPEC+ alliance is next scheduled to convene March 4 via videoconference.

"Finding the right balance between supporting the oil price and increasing output remains a critical and contentious point of debate, especially with almost all the oil-producing countries having spare capacity that can be tapped immediately if necessary," the report said.

Heavy Saudi lifting

Brent prices have stabilized around $55/b in recent weeks.

The fact that Russia, a major member of the alliance, is highlighting that it remains comfortable with current oil prices and is looking to increase output as demand recovers, could prompt an increase in output, the report said.

Moreover, Libya, which is currently producing in a range of 1.0 million-1.2 million b/d -- close to its mid-2019 levels – may be compelled to join the OPEC+ cuts in the upcoming March meeting, ADCB said. At present, Libya is exempt from quotas due to its years of civil war.

One OPEC+ source, who spoke on condition of anonymity, said the group's infighting has reached new levels of fervor, with increasing pressure to raise output coming from the UAE and Iraq.

"The UAE said, why should we keep towing the line? We're not Saudi, we have specific budget plans, we can't cut the proportions Saudi can cut," the source said.

Iraq, meanwhile, has long said it cannot afford to continue cutting production as it seeks to rebuild its distressed economy.

Faced with this obstinance, Saudi Arabia had no choice but to institute its surprise extra cut, if it wanted to support prices, the source said.

"Now they have to do the donkey work, the heavy lifting of the production cuts," the source said. "Saudis were doing major damage control. The market is in really bad shape." - Platts -