Oil prices jumped to three-year highs on Tuesday after major oil producers of the OPEC+ group called off their Monday meeting over the objection of the United Arab Emirates (UAE) to the proposed production levels.
International benchmark Brent crude was trading at $77.50 per barrel at 0625 GMT for a 0.44% increase after closing Monday at $77.16 a barrel. This is the highest level since October 2018 when prices hit $86.74 a barrel.
American benchmark West Texas Intermediate (WTI) was at $76.75 per barrel at the same time for a 2.12% increase after it ended the previous session at $75.16 a barrel, marking the highest since October 2018 when it traded at $76.90.
After postponing their ministerial meeting twice last week, the Organization of Petroleum Exporting Countries (OPEC) and its allies, known as OPEC+, called off Monday’s meeting without setting a new date.
The disagreement among member countries arose after the UAE raised an objection to the group’s proposal to increase the output by 400,000 barrels per day (bpd) from August to December. The group also wants to extend its production cut agreement, which was originally signed in October 2018, from April 2022 to December 2022.
The UAE approved the production rise and extension of the deal on the condition that the deal would be based on an increase in the production baseline from the 2018 level of 3.2 million barrels per day (bpd) to 3.8 million bpd.
'Postponing the meeting also reveals that the objections that the UAE raised are not easy to brush off. 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+,' said Rystad Energy’s Oil Markets Analyst Louise Dickson.
Reiterating that the current prices are built high on the prospect of either a no-deal scenario or a mild increase as initially suggested, Dickson said prices may have difficulty in absorbing a deal with concessions and of a much larger production boost than initially discussed, which she said may be followed by price corrections.
By Sibel Morrow