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The prevailing view is that OPEC will get through a tough meeting, extend the current cuts for maybe three months, and wait for brighter days in 2021. I don’t disagree. But people underestimate how much the UAE’s position is evolving. Thread. #OOTT
The UAE is demanding this week that all countries pledge full compliance and plan near term compensation cuts to make up for past overproduction. Its stance reflects frustration with poor compliance and spotty catch-up cuts by Iraq, Russia and others. https://www.spglobal.com/platts/en/market-insights/latest-news/oil/120120-opec-hopes-to-salvage-a-deal-from-saudi-uae-standoff-with-a-few-days-of-oil-diplomacy
The UAE quota in the current OPEC-plus deal is 2.59 mmb/d, but its production capacity is already 4 mmb/d and it aims to reach 5 mmb/d in capacity by 2030. There is no state-mandated MSC as in Saudi; it's not a deliberate effort to build spare capacity. https://www.spglobal.com/platts/en/market-insights/latest-news/natural-gas/112320-adnocs-new-oil-find-to-help-boost-oil-output-capacity-to-5-mil-bd-by-2030-minister
The SPC just approved a $122 billion capex budget for 2021-2025. As others have noted, ADNOC has incentives to boost Murban crude output to support a new futures contract that will open in March 2021. But there are bigger forces at work here.
Look at what Mohammed bin Zayed has done since effectively taking control of the oil portfolio. In 2016 he restructured the SPC and brought in new top brass at ADNOC. Everything that has happened since reflects a very different view of oil sector governance.
Since 2017 ADNOC has restructured its onshore and offshore concessions to bring in new partnerships. It privatized part of its fuel distribution business, and capitalized part of its refining sector as well as its oil and gas pipeline segments. https://www.nsenergybusiness.com/news/adnoc-gas-pipelines-adq-adpf-deal/
ADNOC has also launched two bid rounds and is trying to license nearly all its available acreage, with a focus on gas resources. This is only a partial list but you get the picture – it’s a sea change. https://www.adnoc.ae/en/block-bid/round-2-blocks
Abu Dhabi always took a cautious, risk-averse approach to the oil sector and relied on a small set of trusted partners. Under MBZ, everything has changed. The focus is on developing resources now and leveraging oil and gas assets. It’s a new mentality.
Finally, MBZ is not afraid to strike a new path. Read this brilliant profile on him from Robert Worth. Think of the independent moves the UAE has made in foreign policy (some not to Riyadh or Washington’s liking) and the recent normalization with Israel. https://www.nytimes.com/2020/01/09/magazine/united-arab-emirates-mohammed-bin-zayed.html.
Given all this, why should the UAE’s oil market strategy remain the same? They’re tired of production restraint. OPEC may well pull off its customary feat and keep the group together this time around, but the UAE is moving in a different direction. The tensions are growing.
