Oil at highest levels since 2018 as OPEC+ discussions called off

Oil prices extended gains to hit some of their highest levels since 2018 after OPEC+ discussions were called off, heightening expectations that supplies will tighten further just as global fuel demand recovers from a COVID-19-induced slump.

Brent crude climbed 18 cents or 0.2 percent to stand at $77.34 a barrel by 0542 GMT, after gaining 1.3 percent on Monday. An earlier session peak of $77.61 was its highest level since October 29, 2018.

US West Texas Intermediate (WTI) crude futures were at $76.57 a barrel, up $1.41 or 1.9 percent from Friday’s close. There were no settlements on Monday, a US holiday to mark Independence Day.

It hit $76.77 a barrel earlier on Tuesday, just shy of an October 2018 peak of $76.90.

Ministers of the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, abandoned oil output talks and set no new date to resume them, after clashing last week when the United Arab Emirates (UAE) rejected a proposed eight-month extension to output curbs.

The UAE, the group’s fourth-biggest producer, argued against a deal proposed by Saudi Arabia and Russia to extend quota limits until the end of next year, rather than ending them in April as originally planned.

The UAE agreed with the other 22 OPEC+ members that monthly output cuts should be eased by 400,000 barrels a day from August, but said the extension should be treated separately.

The group normally settles its differences in private and likes to put on a show of unity. But this rift runs so deep that the energy ministers of the UAE and Saudi Arabia aired their grievances in interviews with Bloomberg Television and other media on Sunday.

‘No extra barrels’

Some OPEC+ sources said there would be no oil output increase in August, while others said a new meeting would take place in the coming days and they believed there will be a boost in August.

“Behind the rally were the views that there will be no extra barrels from OPEC+ coming from next month and recovering fuel demand will cause a further tightness in the market,” said Tetsu Emori, CEO of Emori Fund Management Inc.

But he also added: “The market seems to believe in the OPEC+ framework and that there will be some sort of agreement by August to keep the system going.”

Iraqi Oil Minister Ihsan Abdul Jabbar said on Monday that his country is committed to the current agreement with OPEC and its allies and does not want to see oil prices soaring above current levels to achieve stability.

He also said he hopes that in 10 days there could be a date for the next meeting.

“Investors are not keen to move in either direction from here due to uncertainty over actual actions by the OPEC+ members from next month,” said Toshitaka Tazawa, an analyst at commodities broker Fujitomi Co.

COVID cuts

OPEC+ agreed on record output cuts in 2020 to cope with a COVID 19-induced price crash.

The producers have been gradually easing the output restrictions, but a plan on Friday to lift output by about 2 million barrels per day (bpd) from August to December 2021 and to extend the pact on a series of gradual output shifts to the end of 2022 was blocked.

“The sticking point focuses on UAE production levels under more normal circumstances. This is an issue we would expect OPEC to resolve prior to the termination of the current agreement in April 2022,” Alan Gelder, vice president at Wood Mackenzie, said in a report.

“These discussions will, however, likely prove difficult and protracted.”

Crude oil buyers in Asia were awaiting Saudi Arabia’s official selling prices (OSPs) to assess the market’s direction after the unexpected cancellation of the OPEC+ meeting, three refining sources in Asia told Reuters on Tuesday.