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Oil turns positive after UAE refutes report of OPEC exit

By News Desk
March 04, 2023

LONDON: Oil prices slumped on Friday after the Wall Street Journal reported that the United Arab Emirates had an internal debate about leaving OPEC and pumping more oil, but retraced losses after a source told Reuters this was not true.

Brent later recouped its losses and turned positive, trading at $85.23 per barrel at 11:30 a.m. ET, up 0.57 percent on the previous day.

Amid a gradually growing rift between longtime close allies Saudi Arabia and the UAE, the latter is now debating withdrawing from OPEC, the Wall Street Journal reported, citing unnamed Emirati officials.

This would have a significant impact on the oil producer group's global clout, as well as allow the UAE to pursue its own oil production plans that suit its interests. Abu Dhabi has for some time wanted to increase its crude output to boost its revenue but has been limited by OPEC+ production agreements dominated by the group's kingpin and largest producer, Saudi Arabia.

The idea isn't new; the UAE has reportedly debated leaving the oil alliance for years. But the topic has been revived recently as disagreements with Riyadh grew, the Journal cited Emirati officials as saying. The ruptures have manifested themselves in both countries' divergent aims in the now eight-year-long war in Yemen, in competing for foreign investment, and more recently in state visits — or lack thereof — that have appeared as snubs.

A dispute over oil production levels in July of 2021 temporarily froze OPEC's ability to lay out its plans for the markets, sending crude prices upward.

Abu Dhabi had demanded that its own "baseline" for crude production — the maximum volume it's recognized by OPEC as being able to produce — be raised because this figure then determines the size of production cuts and quotas it must follow as per the group's output agreements. Members cut the same percentage from their baseline, so having a higher baseline would allow the UAE a greater production quota.

The UAE initially called for its baseline to be raised from 3.2 million barrels a day to 3.8 million barrels a day. The compromise eventually reached between Saudi Arabia and its smaller neighbor raised the UAE's baseline to 3.65 million barrels per day from April 2022.

A source with direct knowledge of the matter told Reuters the report that the United Arab Emirates is considering leaving the Organization of the Petroleum Exporting Countries is "far from the truth."

Oil prices this week had been boosted by strong Chinese economic data, underpinning hopes for oil demand growth, but those gains were all but erased on Friday."The driver was the WSJ story, with concerns that this might impact the OPEC+ production (cut) deal. The UAE and Saudi Arabia are the two countries with significant spare capacity," said UBS analyst Giovanni Staunovo.

In China, activity in the services sector expanded at the fastest pace in six months in February and Manufacturing activity in China also grew. China's seaborne imports of Russian oil are set to hit a record high this month.