Oil touches six-year excessive after OPEC fails to get deal, then turns unfavourable

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A person hands over the logo of the Organization of Petroleum Exporting Countries (OPEC) in front of the headquarters of OPEC in Vienna, Austria April 9, 2020.

Leonhard Föger | Reuters

Oil jumped to its highest level in six years after talks between OPEC and its oil-producing allies were indefinitely postponed as the group failed to reach an agreement on production policies for August and beyond.

On Tuesday, the US oil benchmark West Texas Intermediate Crude Oil futures traded up to $ 76.98, a price that has not been seen since November 2014. But at 9 a.m. on Wall Street, those gains were gone, and the contract for August delivery was 3 cents lower at $ 75.13 a barrel. Brent crude hit its highest level since late 2018, before too gains reversed, last trading 1.2% lower at $ 76.23 a barrel.

Talks between OPEC and its allies, known as OPEC +, began last week when the Energy Alliance tried to set a production policy for the remainder of the year. The group voted on Friday on a proposal that would have brought 400,000 barrels a day to market every month from August through December, adding up to an additional 2 million barrels a day by the end of the year. Members also suggested extending the production cuts until the end of 2022.

The UAE turned down these proposals, however, and talks stretched Thursday through Friday as the group tried to reach consensus. The talks were originally supposed to resume on Monday, but were ultimately broken off.

“The date for the next meeting will be set in due course,” said OPEC Secretary General Mohammad Barkindo in a statement.

OPEC + took historic measures in April 2020, removing nearly 10 million barrels per day of production to support prices as demand for petroleum products plummeted. Since then, the group has been slowly returning barrels to the market while meeting almost monthly to discuss production policy.

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“It wasn’t a good deal for us,” UAE Energy and Infrastructure Minister Suhail Al Mazrouei told CNBC on Sunday. He added that the country would support a short-term increase in supply but would like better terms if the policy is to be extended through 2022.

Oil’s soaring rally this year – WTI is up 57% in 2021 – meant many Wall Street analysts, ahead of last week’s meeting, expected the group to step up production to curb price hikes.

“Without an increase in production, the imminent growth in demand should lead to the global energy markets picking up even faster than expected,” wrote analysts from TD Securities in a message to customers.

“This impasse will lead to a temporary deficit well above expectations, which should fuel even higher prices for the time being. The summer oil price eruption will accelerate at a rapid pace, ”added the company.

– CNBC’s Sam Meredith contributed to the coverage.

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