Earlier this month, negotiations between OPEC and its allies to increase oil production and lower prices were abandoned because of a dispute over how much crude the UAE can produce under the new agreement.

The media quoted OPEC + internal sources to report that Saudi Arabia and the United Arab Emirates reached a compromise agreement in the OPEC + crude oil production quota stalemate.

Earlier this month, negotiations between OPEC and its Russia-led ally (an organization called OPEC+) broke down due to a dispute over individual quotas for crude oil extraction.

The question is how much oil Abu Dhabi will be allowed to produce under a proposed transaction that aims to add 2 million barrels of crude oil to the market every day to cool oil prices.

As the global economy—especially the more advanced economies—is free from COVID-19 restrictions, stimulating energy demand, crude oil prices have recently soared to their highest level in two and a half years.

After Reuters reported that Saudi Arabia and the UAE reached a compromise, the global benchmark Brent crude oil fell by about US$1 to US$75 per barrel. Both of these countries are the main producers of OPEC.

Last year, after the COVID-19 blockade destroyed global demand for crude oil, oil prices plummeted, and Saudi Arabia announced an oil price war after it was unable to get other OPEC+ members to agree to a substantial reduction in production, which put more pressure on the market.

The collapse in prices has escalated geopolitical tensions between Washington and Riyadh, as American shale oil producers — whose production costs are much higher than those of Saudi Arabia — face an existential threat.

But after OPEC+ agreed to cut production by approximately 10 million barrels per day, the oil market stabilized last year. Since then, these restrictions have been gradually relaxed and are now approximately 5.8 million barrels per day.

Although most OPEC+ member states support the proposal to lift the remaining production cuts by increasing production by 400,000 barrels per day before the end of next year, the UAE refuses to approve the proposal unless it increases its individual production quotas.

An OPEC+ source told Bloomberg News on Wednesday that the compromise with Saudi Arabia will increase the UAE’s production baseline from the current approximately 3.17 million barrels per day to 3.65 million barrels per day.

OPEC+ has not yet made a final decision on its production policy, and has not announced a new meeting date after the negotiations were abandoned this month.

But the boost to the UAE baseline may open the door for other OPEC+ member countries to increase their production quotas.

There is evidence that the global oil market is tired of soaring crude oil prices. Due to weakening demand from China, the world’s largest oil exporter, oil transactions fell on Wednesday after news that Saudi Arabia and the UAE reached a compromise agreement.

Rystad Energy analysts wrote in a report to clients on Wednesday: “It is reported that China’s half-year crude oil imports have fallen by 3% compared to the same period in 2020, and traders are beginning to realize that oil prices may change in too long. It’s too expensive.”

“Since China is the world’s largest crude oil importer, the decline in imports, especially the first decline in imports in many years, is an important price signal for the market to step on the brake pedal.”