The Minuses of OPEC+ Are Exposed by the #UAE - Bloomberg

The Minuses of OPEC+ Are Exposed by the UAE - Bloomberg

The genius of the OPEC+ brand is that it literally spins a negative as a positive. OPEC’s expansion in late 2016 wasn’t a case of groupies clamoring to gain entry to the club; rather, an old institution fallen on hard times sought fresh supporters. Since then, it has worked best the way the old OPEC worked best: with its back to the wall. When Covid-19 hit last year, OPEC+ called ceasefire on a barely-begun price war and slashed production.

A year or so on, oil is back up to almost $80 a barrel, but the club is unhappy again. And it’s for the same underlying reason. You could call that reason the energy transition but it’s more of an everything transition.

The spat between the United Arab Emirates and Saudi Arabia (and the rest of OPEC+, nominally) is on one level about barrels and baselines. The UAE contends it deserves a higher production target and also doesn’t want to extend the agreement. Saudi Arabia, meanwhile, has no desire to reopen the books on quotas and wants to keep a firm grip on the oil market through 2022.

But the schism runs a bit deeper than that. The UAE has been acting a lot like it foresees an expiration date for OPEC, plus-size or otherwise. It has invested heavily in boosting production capacity (hence the insistence on a higher target). It has sliced and diced its oil business into saleable chunks, keeping control but bringing in cash upfront. It has launched a new oil futures benchmark that, if to be successful, rather undercuts the whole idea of supply restrictions.

In short, the UAE is preparing for a world in which oil demand could peak and low-cost producers such as itself are best served selling every barrel as quickly as they can.