Is this the end of OPEC? How Saudi Arabia and UAE infighting threatens the future of the oil alliance
LONDON — Oil producer group OPEC has been plunged into crisis, with bitter infighting between Saudi Arabia and the United Arab Emirates raising questions about the future of the energy alliance.
OPEC and non-OPEC partners, a group of some of the world’s most powerful oil producers, abruptly abandoned plans to reconvene on Monday after last week’s meetings unexpectedly failed to broker a deal on oil production policy. The group did not set a new date to resume talks.
It means no agreement has been reached on a possible increase in crude production beyond the end of July, leaving oil markets in a state of limbo just as global fuel demand recovers from the ongoing coronavirus pandemic.
“OPEC+ has been thrown its most serious crisis since last year’s ill-fated price war between Saudi Arabia and Russia,” Helima Croft, head of global commodity strategy at RBC Capital Markets, said in a research note.
“Back-channel talks reportedly are continuing, but questions about UAE’s commitment to remaining in OPEC will likely grow in the coming days.”
The UAE-Saudi dispute appeared to be about more than oil policy, Croft said, with Abu Dhabi “seemingly intent on stepping outside Saudi Arabia’s shadow and charting its own course in global affairs.”
OPEC+, which is dominated by Middle East crude producers, agreed to implement massive crude production cuts in 2020 in an effort to support oil prices when the coronavirus pandemic coincided with a historic fuel demand shock.
Led by Saudi Arabia, a close ally of the UAE, OPEC+ has met monthly to decide on production policy.
OPEC solidarity ‘dissolved’
The disarray comes after OPEC+ on Friday voted on a proposal to increase oil production by roughly 2 million barrels per day between August and the end of the year in 400,000 barrels per day monthly installments. It also proposed to extend the remaining output cuts to the end of 2022.
The plans were rejected by the UAE, however, which wants a higher baseline to its quota to allow for more domestic production.
“No agreement was reached and as we stand now the OPEC+ alliance, if it is still the right word to describe the group, will produce at the July level for the rest of the year,” Tamas Varga, oil analyst at PVM Oil Associates, said in a research note.
“The [non-] outcome of the meeting re-writes the supply-demand landscape for the near and potentially for the distant future,” he added.
The rare public stand-off between the UAE and Saudi Arabia saw energy ministers from both countries engaging in a media blitz over the weekend to outline their respective positions.
“For us, it wasn’t a good deal,” UAE Minister of Energy and Infrastructure Suhail Al Mazrouei told CNBC’s Hadley Gamble on Sunday. He added that while the country was willing to support a short-term increase in oil supply, it wants better terms through 2022.
Speaking to the Saudi-owned Al Arabiya television channel on Sunday, Saudi Arabia’s Energy Minister Abdulaziz bin Salman called for “compromise and rationality” in order to reach a deal on Monday, Reuters reported.
Separately, a White House spokesperson reportedly said on Monday that President Joe Biden’s administration was pushing for a “compromise solution.” The U.S. is not a member of OPEC (which stands for the Organization of Petroleum Exporting Countries) but it has been closely monitoring the latest round of talks given their potential impact on crude markets into next year.
Responding to the news that the OPEC+ meeting had been adjourned without a deal on Monday, John Kilduff, a founding partner at Again Capital, said: “The Opec solidarity dissolved today.”
“The pandemic held them together and now the post pandemic is breaking them apart. The UAE is sticking to their guns on wanting their baseline raised. They want to be able to produce more,” he told CNBC via email.
“Now the fun starts as to who breaks away,” Kilduff said, noting the UAE could be the “first domino” to fall.
OPEC was not immediately available to respond to a request for comment when contacted by CNBC on Tuesday.
Oil prices climb to multi-year highs
The news pushed oil prices to their highest level in nearly three years. International benchmark Brent crude futures traded at $77.65 a barrel on Tuesday morning, up 0.6% for the session, while U.S. West Texas Intermediate futures stood at $76.62, around 2% higher.
Oil prices rallied more than 45% in the first half of the year, supported by the rollout of Covid-19 vaccines, a gradual easing of lockdown measures and massive production cuts from OPEC+.
Samuel Burman, assistant commodities economist at Capital Economics, said OPEC producers were likely to increase oil production above quota next month as member states “seek to take advantage” of higher oil prices.
In addition to a rift between the UAE and Saudi Arabia, he said Abu Dhabi was probably “somewhat irritated” that Russia hadn’t been complying with OPEC’s production quotas.
Burman said non-OPEC leader Russia hadn’t introduced any compensatory cuts at all and was currently overproducing by around 100,000 barrels per day. “We think that this spat involving the UAE increases the chances that the entire agreement falls apart which would clearly pose a downside risk to our near-term price forecasts.”
— CNBC’s Patti Domm contributed to this report.
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After Paris banned electric scooters, something surprising happened in the city
Paris raised eyebrows earlier this year when the city voted to ban shared electric scooters. While privately owned electric scooters were still allowed, the thousands of shared electric scooters that were commonly used by locals and tourists were forced to vacate the city, with unexpected results.
The idea for a shared electric scooter ban was originally floated late last year in response to the growing complaints by a vocal minority of citizens who objected to their widespread use around the city. Earlier this year, the referendum went up for a vote. Ultimately, the majority of voters on the day supported the proposed ban, though extremely low turnout meant that the measure passed despite garnering ‘yes’ votes from just 7% of registered voters in Paris.
Shared electric scooters were often seen as a way for commuters to avoid driving cars and for tourists to eschew rental vehicles in favor of smaller shared e-scooters. Because the scooters weren’t privately owned, they were ideal for both groups as an on-demand transportation solution.
At their peak, 15,000 electric scooters helped riders navigate the capital city.
While many predicted that a shared electric scooter ban could have a knee-jerk reaction to return to larger vehicles, a new study has shown that the effect may have bolstered dockless bike-sharing instead.
An interesting trend has emerged comparing September 2022 and October 2022 ridership levels of dockless bikes and scooters. The total number of rides has slightly decreased this year due to the expulsion of shared electric scooter companies. However, the number of dockless bike rides skyrocketed, more than doubling in just one year.
September 2022’s roughly 750,000 dockless bike trips became nearly 2 million trips in September 2023. Similarly, October 2022 saw a nearly identical jump in ridership.
The results seem to show that despite Paris banning shared electric scooters, Parisians still seek out and use shared mobility devices. Now, they appear to have merely shifted to shared bikes instead of shared scooters.
Less than a year after the shared electric scooter ban was enacted, a modal shift towards alternative shared mobility is clearly visible in the city.
Shared electric scooters are out, but shared micromobility seems to be going strong.
Whether Parisians will take a similarly hardline approach against a new growing ridership of dockless mobility devices has yet to be seen, but could also determine the fate of dockless bikes in the city.
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Chinese EV maker Nio to spin off battery unit: report
For years, Chinese EV maker Nio has essentially done it all, delving into high-end EV manufacturing, in-house batteries, autonomous driving, and chips, as well as innovative battery-swapping tech and even making smartphones, all while pulling in huge investments and talent to make that happen. Now, according to a new report, it’s looking to lighten the load.
As reported by Reuters, Nio now plans to spin off its battery unit in hopes of turning a profit, cutting costs, and improving efficiency – and offloading some of its ambitions to pursue end-to-end strategies in EV tech. The move could take place as early as the end of this month, after which the battery unit will seek outside investors, followed by a valuation, according to two people familiar with the matter who spoke to Reuters.
Nio’s current battery unit is headed by senior engineers who worked previously at Apple and Panasonic. During last year’s earnings report, CEO William Li said that the battery team comprised 400 people researching battery materials, cells, and battery management systems. In terms of the new company, the top engineers will presumably join the spin-off, while other employees will be merged into Nio’s other divisions, the report said.
Nio brought on a team of engineers “to mass-produce large cylindrical batteries similar to the Tesla 4680 in a planned plant in China’s eastern Anhui province in 2025 at the earliest,” Reuters writes. In February, reports stated that the plant would have an annual capacity to produce 40 GWh of batteries to power about 400,000 long-range EVs.
Nio of course hasn’t been immune to market pressures on EV makers, with a reported third-quarter loss of 4.56 billion yuan ($637.06 million) on Tuesday, a 10.8% increase from the same period a year ago. CEO Li, who has not mentioned any plans for a spin-off, is focusing on reassuring investors that the company isn’t in over its head, saying that they’ll cut staff by 10% and defer long-term investors to save up to 2 billion yuan in costs this year.
Nio has also partnered with Geely and state-owned Changan Automobile to develop EVs capable of battery swaps, making Nio the only passenger vehicle manufacturer advancing this potential. Nio, which already sells in Europe, is also looking to build a dealer network in the region to accelerate sales. It also has targeted 2025 as a goal for expanding to the US – no small ambition.
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