Brent oil was steady near $77 a barrel after OPEC+ ended days of talks without a deal to bring back more halted output next month, depriving the market of vital barrels as the global economic recovery gathers pace.
Futures in London rose 1.3% on Monday after the alliance failed to reach an agreement, which will leave current production limits in place for August unless talks are revived in the coming days. A disagreement over how to measure output cuts upended a tentative proposal to boost supply and devolved into a public spat between allies Saudi Arabia and the United Arab Emirates.
The situation is fluid and OPEC+ could reactivate negotiations in time to add more production in August. However, the breakdown has damaged the group’s image as a responsible steward of the oil market and raised the specter of a repeat of last year’s destructive price war when members pumped as much as they could and sent crude prices crashing.
“The failure of OPEC+ to come to an agreement will only add further uncertainty to the oil market,” said Warren Patterson, the head of commodities strategy at ING Group NV in Singapore. “Assuming we don’t get a quick resolution, the uncertainty over OPEC+ output in the months ahead does suggest increased volatility.”
OPEC+ had restored about 2 million barrels a day halted during the pandemic from May to July. The alliance was close to a deal to raise daily output by a further 400,000 barrels in each month from August through December, as well as extend the supply pact beyond April 2022. The UAE, however, said it would only accept the proposal if it was given better terms for calculating its quota.
The UAE said throughout that it would accept the output increase without the deal extension, but the Saudis argued that the two elements must go together.
The global market has tightened significantly over the past few months amid a robust rebound in fuel demand in major economies such as the U.S. and China, draining stockpiles built up during the pandemic. The International Energy Agency last month urged OPEC+ to keep markets balanced as worldwide demand accelerated toward pre-virus levels.
- Brent for September settlement rose 0.3% to $77.39 a barrel on the ICE Futures Europe exchange at 9:19 a.m. in Singapore.
- West Texas Intermediate for August delivery gained 1.9% from Friday’s close to $76.57 on the New York Mercantile Exchange.
- There was no settlement Monday due to a U.S. holiday.
- The market has moved further into a bullish structure on the breakdown in talks. The prompt timespread for Brent was 99 cents a barrel in backwardation — where near-dated prices are more expensive than later-dated ones — compared with 87 cents on Friday.
With no further OPEC+ supply imminent, the market is likely to tighten further and could result in Brent climbing to $80 a barrel by September, according to UBS Group AG. The alliance could still reach a supply agreement in the coming days given negotiations will likely continue among member states, and the release of Saudi Aramco’s official selling prices for August should provide more clarity, the bank said.