Baseline Bombshell Blocks Opec-Plus Deal

A surprise push by some Opec-plus members to change the way their production quotas are calculated has held up a potential agreement by the group to add more oil to global markets in the months ahead. Members of the producer alliance failed to reach an agreement on Thursday on oil production policy for August and beyond. Last-minute demands from several Opec-plus states to change their official production baselines pushed a meeting of the Joint Ministerial Monitoring Committee (JMMC) late into the night and left the group without a recommendation for the broader Opec-plus alliance. The baseline imbroglio held back a proposal to ease current cuts of around 5.7 million barrels per day to 2.1 million b/d over a period of nine months starting in August of this year. That proposal was backed by key member states, including Saudi Arabia and Russia, according to delegates attending the meeting (IOD Jun.24'21). The delegates added that there were also talks to extend the broad Declaration of Cooperation -- the foundational document of the Opec-plus alliance -- beyond its original expiry date at the end of April 2022 (OD Jun.30'21). Bargaining Over Baselines The JMMC meeting came to a grinding halt when representatives of the United Arab Emirates, Iraq and Kazakhstan made a surprise request to increase each country’s production baseline. Production baselines were assigned to each country when the historic Opec-plus agreement was struck last year. The figures were set according to October 2018 production levels, except for Saudi Arabia and Russia, which were both given the same baseline level of 11 million b/d. Any increase in a country's baseline would amount to an immediate and long-lasting increase in its output as any cuts would be deducted from a higher level of production. Representatives of the UAE, Iraq and Kazakhstan argued on Thursday that their true production levels were misrepresented in the original agreement. "The UAE was first to bring up the fact that they had an unfair baseline that needed to be changed and then they were quickly followed by Iraq and Kazakhstan that requested the same," said a delegate who attended the JMMC meeting. Energy Intelligence understands that the UAE wants to see its baseline raised to 3.841 million b/d from its current level of 3.168 million b/d before it would agree to an extension of the cuts beyond April 2022. The new figure is based on the country's April 2020 production. It's unclear by how much Iraq and Kazakhstan want their baselines to be raised. "Saudi Arabia and Russia did not accept this idea to change baselines and it was decided that more time is needed to reach an agreement," said another delegate at the meeting. What's Next? During the JMMC meeting, efforts were made by several ministers, including the Kuwaiti minister, to reach a compromise. However, UAE Energy Minister Suhail al-Mazrouei stood his ground. He said the issue was not negotiable because the current baseline for his country does not fairly represent its production capacity. Al-Mazrouei's stance would indicate that he has the support of the UAE's leadership on the matter, and it may require overnight consultations at the highest level with other Gulf states to find a compromise, delegates said. Energy Intelligence was first to report last year that the UAE was internally questioning the benefits of remaining a member of the Opec group (IOD Nov.17'20). The country plans to increase its oil production capacity to 5 million b/d from its current level of around 4 million b/d and has recently touted its Murban crude futures contract as a potential new benchmark for sales into Asia (IOD Mar.29'21). Opec-plus representatives will meet again on Friday to try to find a compromise. Another round of JMMC talks is scheduled ahead of a full ministerial meeting. But it's unclear how the differences over production baselines might be resolved. Delegates attending the meeting on Thursday said that all delegations were surprised by the objections raised by the three countries. "No one saw this coming. Everyone was just focused to see if Saudi Arabia and Russia would agree on easing the cuts," said one delegate (IOD Jun.30'21). Amena Bakr, Dubai