Producers are facing difficulties in adhering to the discounts currently agreed upon (Getty)
This potential hesitation increases the possibility of reviewing target production levels when the Organization of the Petroleum Exporting Countries (OPEC) meets in November to decide on production policies and may also cause further divisions within the OPEC + group, which includes allies of the organization, which complicates efforts to restore Balance to market amid weak global demand.
The sources said that the UAE and Kuwait have traditionally supported Riyadh’s position, but they are beginning to feel the weight of strict oil policies and fear that they will continue into 2021 as they believe that the production cuts are too large to be maintained.
The sources indicate that Saudi Arabia, the de facto leader of OPEC, and Russia, which leads the organization’s allies, support continuing the current level of reduction of 7.7 million barrels per day for the next year instead of reducing it by two million barrels per day from January under the current agreement.
An OPEC source said, “Countries are suffocating with these reductions … it is difficult to continue them in the next year as well.”
Sources familiar with the matter in OPEC and in the sector explained that the UAE finds it difficult to continue bearing the burden of these huge reductions due to the agreements concluded between it and international oil companies and because the base level of production, on which the size of the reduction was determined, is very low compared to the full production capacity.
Other sources said that the UAE and Kuwait said in talks to OPEC + recently that they are not concerned about Libya’s return to a continuous increase in production in the near term, as this will make it easier for other OPEC countries to increase production as planned.
According to OPEC data, the UAE reduces production by 33% of its capacity, as it produces 2.59 million barrels per day, down from about 3.9 million barrels per day in April before the agreement.
The UAE exceeded its production ceiling under the deal in August, but promised to compensate for that by reducing supplies in the coming months.
The data show that Kuwait’s production is 2.297 million barrels per day, after its capacity had reached 3.1 million barrels per day, which means that it reduces about 26% of its production.
As for Iraq, the second largest producer in OPEC, which is required to reduce about 850 thousand barrels per day of its production, he talked about exempting it from the reduction next year.
A senior Iraqi official in the oil sector who attended OPEC meetings said, “Iraq will remain committed to the OPEC + agreement to reduce production, and we will continue to fulfill our pledge not only in terms of reducing production but also regarding compensation for the months in which we have not fully committed, until the end of the year.”
He continued, “But, here we have an important remedy, when OPEC meets again to discuss plans for 2021, it will be difficult for Iraq to continue reducing production and exports with the same agreed quota in 2020 because we are suffering from a financial crisis threatening a possible collapse of the Iraqi economy.”
He added, “All OPEC member states must understand the critical situation of Iraq … when it comes to discussing a new agreement to reduce production.”