Dividends and Behind the OPEC clash

Often because we are human we tend to see things as monolithic because that is the easy way to present them. But similar to many industries there are clashes underneath the easy headline. In the case of the oil industry, OPEC has been the monolithic group for years, ever since OPEC banded together to help raise prices or maybe it was the 7 Major Sisters needing a reason to increase prices. One never knows for generally it is a combination.

In an article by Stanley Reed of the New York Times News Service, there is fighting between Saudi Arabia and the United Arb Emirates (UAE) over production quotas.

Saudi Arabia wants production outputs to be cut, while the UAE wishes to increase production.

UAE has been using its vast resources to transform the country into a business, financial and tourism hub. The UAE has 98 billion barrels of oil or 6% of the world’s total.

Unlike the major oil companies who are feeling the heat by the courts and shareholder votes regarding climate change, the UAE does not have the same concerns at home. It you protest you might end up in jail.

The Abu Dhabi National Oil Company (ADNOC) plans to spend $120 billion over the next 5 years to increase production. Sultan Ahmed al-Jaber, chief executive officer of ADNOC has hired people to build a trading oil operation which is considered a key business tool by Shell and BP. He has sold stakes in pipelines and other infrastructure to investors such as KKR and BlackRock to raise billions of dollars.

Abu Dhabi has 2 large investment funds called the Abu Dhabi Investment Authority and the Mubadala Investment Co with over $900 billion in assets.

The UAE currently produces around 3.8 million barrels of oil and wants to raise it to 5 million a day by 2030.

At present the OPEC present production limit is 2.7 million barrels per day, which UAE considers unfair.

Saudi Arabia is the biggest producer of oil and they have multiple incentives aimed at keeping each country in line. Saudi Energy Minister Prince Abdulaziz bin Salman says he has to keep the balance between the countries.

Linking to dividend paying stocks, all companies are painted with a simple statement of what they do and making it simple has the advantage of quickly understanding what a company does. It does not have the advantage of what the company can and will become. Use the simple to determine if you like or do not like what the company is doing and then you can do more research to see the challenges and opportunities of all the companies in the group, just try not to paint all companies with the same brush.

There are more questions than answers, till the next time – tor raising questions.

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