Oil prices soared on Tuesday with a rallied around 1.7% in early trade to hit a seven-year high before retreating as Brent crude futures in London traded at $75.23-a-barrel.
Market experts attributed the initial volatile price move to an aborted meeting of the Organization of Petroleum Exporting Countries and its allies (OPEC+).
The early morning higher price move is said to have been in response to news that OPEC+ members were out of sync on production expectations. The cartel had been due to meet on Monday to continue talks on future production levels but a disagreement between the UAE and Saudi Arabia over production cuts boiled over and the meeting was cancelled at the last minute.
“Some members of the group including Saudi Arabia had been hoping to increase production over the coming months, but the UAE had refused to agree and sought better terms that would change how its quota is calculated and allow it to produce more,” Jim Reid, a strategist at Deutsch Bank, wrote in a morning note.
“At first glance a failure to agree supplies is bullish for prices. However, too big a disagreement could eventually lead to unilateralism amongst OPEC+ members and maybe notably higher supply as they break ranks.”
Saudi Arabia raised the August official selling prices (OSPs) of all crude grades it sells to Asia, Reuters reported on Tuesday afternoon.
OPEC+ decided to slash production by nearly 10 million barrels-a-day last year as demand tumbled at the start of the COVID-19 pandemic. Oil prices have risen 50% since the start of the year as the world has begun relaxing COVID-era restrictions.
Naeem Aslam, chief market analyst at Avatrade, said some market participants believe oil could reach $100-a-barrel thanks to the momentum of the economic recovery and successful vaccine programmes.
“We have small players like the UAE flexing their muscles and not agreeing to a supply cut,” Aslam said. “This is a matter of concern.
“For the time being, it doesn’t look like that there may be a supply war, but oil traders must never forget the consequence of previous oil supply wars and the power that Saudi Arabia has in terms of its oil output production increase.”