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Market Focus: Squaring the OPEC+ circle

OPEC+ failed to reach an agreement on raising crude supplies at it latest meeting. The most contentious issue was the baseline to calculate potential individual contributions be considered for an extension of the OPEC+ agreement beyond April 2022. OPEC+ agreed last year to cut output by almost 10 million barrels per day from May 2020, with plans to phase out the curbs by the end of April 2022. Cuts now stand at about 5.8 million barrels per day. As reported by Reuters, OPEC+ “voted on Friday to raise output by some 2 million barrels per day from August to December 2021 and to extend remaining cuts to the end of 2022, but UAE objections prevented agreement”. The UAE, which managed to increase its production capabilities unsuccessfully asked the coalition to revise upward its own production baseline in order to accept the extension of the production cuts in 2022. This would have de facto translated into a quota waiver and into a weakening of the established allocation structure for individual contributions. As usual in the case of “OPEC and Friends”, it is important to understand behind-the-scene negotiations and the bargaining process in order to fully grasp the significance of the latest move.