Oil prices touched their highest levels in years on Tuesday, a day after OPEC, Russia and their allies failed yet again reach agreement on production increases. A teleconference planned for Monday never started, following meetings on Thursday and Friday that did not reach a deal.
West Texas Intermediate, the U.S. benchmark rose as high as $76.98 a barrel earlier in the day, its highest in more than six years, before retreating from that mark. By midmorning in New York the price was down about 1 percent to $74.33 a barrel. Brent crude, the global benchmark, dropped about 2 percent to around $75.45 a barrel after having climbed as high as $77.84 earlier.
The spike reflected worry that the deadlock in OPEC Plus, the alliance of oil producers, means that too little oil would reach the markets at a time of growing consumption as the effects of the pandemic ease and summer travel booms.
The United Arab Emirates, which has invested in its oil capacity in recent years, is insisting on higher levels of production over objections from Saudi Arabia, a longtime ally, and other producers. Mediation efforts have so far not bridged the gap, and a new meeting has not been scheduled. The disarray in OPEC Plus raises the risk of a price war among producers, like the one in spring of 2020, but some analysts think the group is more likely to figure out a way of gradually drip-feeding more oil into the market in the coming months, a move that would soften price jumps.
In a note to clients on Tuesday, analysts at Goldman Sachs wrote that many OPEC Plus countries had not made the investments to increase output to meet growing demand, presenting producers like the United Arab Emirates, Saudi Arabia and Russia with “an opportunity to bring production to or near” record levels.
The Saudis, who have the ability to increase their output by more than three million barrels a day from the 8.5 million barrels a day in May, could intervene if the market overheats. The Biden administration has been slow to react to rising prices in recent months, but it is beginning to take notice.
All OPEC Plus members seem to agree on the need to raise output, but the deadlock has so far blocked a deal.
On the table at the meetings was a proposal by Saudi Arabia and Russia to increase production by 400,000 barrels a day each month for the rest of this year, beginning in August, eventually raising total output by two million barrels a day.
The Saudis want to make that increase conditional on extending an OPEC Plus output agreement from spring 2020 beyond its expiration date of April 2022. The United Arab Emirates wants any extension coupled with an upward recalculation of its production quota, which it says does not fairly reflect its current output capacity.