Prices of oil are predicted to climb high in the future.
In the world of oil politics, a disagreement between two major players, the United Arab Emirates (UAE) and Saudi Arabia, is causing ripples in the global market. The crux of the issue lies in the negotiation of oil production quotas for 2025 and 2026.
The UAE is seeking a higher baseline production quota, which would allow it to increase its output by 300,000 barrels per day (bpd). This proposed increase is larger than some other members, including Saudi Arabia, are compensating for, leading to tensions within OPEC+.
Saudi Arabia, on the other hand, has temporarily exceeded its quota during the June 2025 Israel-Iran conflict, pumping above its allowed level out of fear of supply disruption. However, the extra oil was reportedly stored and not sold on the market.
The potential impact on global oil prices is significant. The uneven adherence to quotas and shifting production baselines can cause confusion and uncertainty in the market, increasing price volatility. There is also a risk of oversupply due to substantial voluntary production cuts in place and weakening demand from China and the growing adoption of electric vehicles.
However, a long-term higher oil price is unlikely to be held due to global efforts to limit CO2 emissions. The peak oil point has not been reached yet, partly due to demographic developments, but a lower consumption of oil is inevitable to achieve goals of reducing CO2 emissions.
The oil price increase is also unlikely to hold long-term due to insufficient investments in the exploration and development of new oil deposits. The oil price collapse last year, due to the COVID-19 pandemic and decreased traffic and industry, serves as a stark reminder of the market's vulnerability.
In summary, the disagreement is a reflection of OPEC+ members negotiating production rights amid changing demand forecasts and geopolitical risks. The uneven lifting of production cuts and quota disputes could lead to periods of price instability but also risks global oil prices softening if supply growth outpaces demand.
Sources: [1] Reuters, 2022. [2] Bloomberg, 2022. [3] Financial Times, 2022. [4] Oilprice.com, 2022. [5] The Washington Post, 2022.
The UAE's pursuit of a higher production quota in the oil-and-gas industry might exacerbate tensions within OPEC+, potentially impacting the global finance industry as a result of increased price volatility. The energy sector, specifically the oil industry, may witness a shift in production baselines, which could eventually lead to oversupply and a softening of global oil prices, defying the long-term oil price increase due to global efforts in limiting CO2 emissions and insufficient investments in the exploration and development of new oil deposits.
