EXPLAINER-Why UAE blocked OPEC+ pact, and some possible outcomes

LONDON, July 6 (Reuters) - The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, were forced to abandon talks on Monday after a rare public disagreement between the United Arab Emirates and Saudi Arabia over policy points. Below are the main sources of the disagreement and possible outcomes.

OPEC+ agreed last year to record output cuts of almost 10 million barrels per day (bpd), or about 10% of world output, as the coronavirus pandemic hit. The curbs have been gradually relaxed and currently stand at about 5.8 million bpd. The group plans to phase out the curbs by the end of April 2022.

The group failed to reach a deal in its latest virtual meeting that started from Thursday and continued until Monday because the UAE blocked some aspects of the pact.

The UAE on Friday accepted a proposal from Saudi Arabia to raise output in stages by about 2 million bpd from August to December 2021, on average adding 400,000 bpd each month. The UAE said with the pace of economic recovery around the world, the oil market will soon be in “dire need” of higher production.

However, the UAE rejected the extension of cuts beyond April 2022, when the current agreement terminates, without adjusting its baseline production - the level from which any cuts are calculated.

The UAE, the third-biggest oil producer in OPEC behind Saudi Arabia and Iraq, believes its baseline was originally set too low in October 2018 when the OPEC agreed on current figures.

The United Arab Emirates also believes the baseline is “outdated” since it does not reflect the growth of its production capacity as a result of billions of dollars of investments in recent years.

The country’s baseline is currently at 3.168 million bpd. OPEC+ sources say the country wants to increase it by 20% to 3.8 million bpd. The OPEC+ pact has currently left about 30% of the UAE capacity idle.

The Emiratis have asked for their baseline to be reviewed and recalculated, but the idea has been rejected by Saudi Arabia.

The UAE has suggested its production level at April 2020 as a new baseline, but Riyadh believes that could undermine the commitment of other members to their baselines since at that time many countries had increased output as a result of a price war between Saudi Arabia and Russia.

“Looking at the current deadlock, it is unlikely that the UAE alone will be allowed to get a higher quota, because this will come at the expense of other members, in particular Saudi Arabia,” said Rystad Energy analyst Louise Dickson.

The current impasse was not sustainable, according to Paul Horsnell, head of commodities research at Standard Chartered.

“We expect the eventual resolution to add to overall supply; either the UAE will stay inside the tent with a higher baseline, or it will choose (like Venezuela, Libya and Iran) to opt out of targets, causing further turbulence,” Horsnell said.

Reporting by Bozorgmehr Sharafedin in London Editing by Matthew Lewis