Oil prices jump to multi-year highs after OPEC + talks fail to agree on production

Oil jumped to its highest level in almost three years on Monday after talks between OPEC and its oil-producing allies postponed indefinitely, with the group failing to reach an agreement on production policy for August and later.

West Texas crude futures, the U.S. benchmark for oil, rose 1.56% or $ 1.17 to $ 76.33 a barrel, the highest level since October 2018. International benchmark Brent raw rose 1.2%, or 93 cents, to $ 77.10 a barrel.

Discussions began last week between OPEC and its allies, known as OPEC +, as the Energy Alliance sought to establish an exit policy by the end of the year. The group voted on Friday to put a proposal to return 400,000 barrels a day to the market each month from August to December, resulting in an additional 2 million barrels a day by the end of the year. Members also proposed extending production cuts until the end of 2022.

The United Arab Emirates, however, rejected these proposals, and talks stretched from Thursday to Friday as the group tried to reach a consensus. Initially, discussions were supposed to resume on Monday, but were eventually adjourned.

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

OPEC + took historic action in April 2020 and removed nearly 10 million barrels a day in production in an attempt to support prices as demand for petroleum products plummeted. Since then, the group has been slowly returning barrels to market, meeting almost monthly to discuss production policy.

“It was not good for us,” UAE Minister of Energy and Infrastructure Suhail Al Mazrouei said told CNBC on Sunday. He added that the country will support a short-term increase in supply, but wants better conditions if the policy is to be extended until 2022.

This year’s excessive oil rally – WTI recorded 57% during 2021 – meant that ahead of last week’s meeting, many Wall Street analysts expected the group to boost production in an attempt to stop the price jump.

“Without an increase in production, the forthcoming growth in demand should tighten global energy markets at an even faster pace than expected,” TD Securities analysts wrote in a note to clients.

“This deadlock will lead to a temporary and much larger-than-expected deficit, which should boost even higher prices for now. The summer drop in oil prices should speed up contractions,” the company added.

– Reporting was provided by CNBC’s Sam Meredith.