- Oil prices hit a three-year high after OPEC+ abandoned their meeting on Monday.
- Prices jumped because the lack of a deal brings the market closer to an August without extra barrels from the alliance, an analyst said.
- Oil prices have risen 50% since the start of the year as countries begin to recover from the COVID-19 crisis.
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Oil prices jumped to their highest in three years on Tuesday after OPEC and its allies abandoned talks on Monday without setting a new date for the next meeting.
Ministers had been set to resume talks on Monday after failing to reach a deal on raising oil production last week, with the United Arab Emirates rejecting a proposed eight-month extension to output curbs. Now that no deal to boost production has been reached, it could signal tighter supply and rising prices.
Brent crude futures rose 0.8% to $77.78 a barrel, trading around their highest since autumn 2018, while West Texas Intermediate rose 2.3% to $76.92 a barrel. This year alone, crude oil has soared by almost 50%.
The current “crisis” within OPEC, which has seen Saudi Arabia and the UAE fail to agree on whether to continue the production cuts agreement, is not entirely unexpected, according to analysts at Commerzbank.
Some OPEC members, including Saudi Arabia, had been hoping to increase production over the coming months. But the UAE refused to agree and sought better terms that would change how its quota is calculated and allow it to produce more, Deutsche Bank strategist Jim Reid said in a note.
Oil prices hit post-pandemic highs after reports that Monday’s meeting had been called off and that the group would continue with quotas at current levels.
Almost at the moment prices begin to rise, the differences between the members increase and production discipline declines, analysts at Commerzbank said.
The “meeting’s postponement brings the market closer to an August without extra barrels from the alliance, and that is why oil prices immediately jumped on the news,” Louise Dickson, oil markets analyst at Rystad Energy, said in a note.
“Postponing the meeting also reveals that the objections that the UAE raised are not easy to brush off,” she added. “It may take some convincing and some serious concessions from Saudi Arabia to reach a deal now, and these should only mean increasing output more than initially suggested going forward – if a deal is to be agreed among OPEC+.”
But one source familiar with the OPEC+ talks told the Financial Times that there is no postponement. “The UAE blocked the decision, so the meeting is cancelled. The current production levels continue as they are,” a person familiar with Saudi Arabia and Russia’s positions told the FT.
The dispute is still leaving the oil market cold, chiefly because supply is currently tight, Commerzbank said. But it will likely to put pressure on prices in the medium term, especially in view of the structural shift away from fossil fuels.