WASHINGTON (DTN) -- In early trade following the July Fourth holiday weekend, oil futures nearest delivery on the New York Mercantile Exchange powered higher, sending the U.S. crude benchmark to the highest trade since November 2014 after Organization of the Petroleum Exporting Countries and Russia-led producers called off their scheduled meeting until further notice amid a deepening rift between Saudi Arabia and United Arab Emirates, meaning the group will maintain their current production quotas into August.
In early trade, NYMEX August West Texas Intermediate futures hovered near $76 per barrel (bbl) after trading at a better-than 6-1/2 year high $76.98 bbl overnight and Brent crude on the Intercontinental Exchange reversed lower from a $77.84 high to trade just below $77. NYMEX August RBOB futures advanced 1.22 cents to $2.2998 gallon, with front-month ULSD futures gaining 1.62 cents to trade near $2.1953 gallon.
The deadlock over OPEC+ production quotas sent oil prices to multi-year highs early Tuesday as investors believe the stalemate would keep additional supplies off the global oil market. Last week, the United Arab Emirate blocked a proposed deal for OPEC+ to gradually increase production by 400,000 barrels per day (bpd) through the end of 2021, requesting the baseline from which its production cuts are referenced against to be substantially higher before agreeing to an extension. After three attempts at bridging differences failed, OPEC+ called off further meetings.
OPEC+ was expected to agree to continue with its production agreement through December 2022, with the rest of the group reportedly backing the proposed deal. In the short-term, the discord means that OPEC+ would keep their production quotas unchanged at the current level of around 5.7 million bpd, which could lead to an overtightening of the physical global crude oil market.
Demand in the countries that are part of the Organization for Economic Cooperation and Development is expected to surge by 3.1 million bpd from now through the end of the year, up 6.3% from the January through June period, as economies recover from pandemic lockdowns.
In the long-term, the inability for OPEC+ to reach consensus could lead to widespread cheating on production quotas, tempting other members of the cartel to pump more oil to cash in on higher oil prices.
UAE's request to lift its production baseline from the current 3.168 million bpd to 3.85 million bpd came after years of heavily investing in its crude output capacity. Similar requests were previously denied for Nigeria but approved for Russia and Kazakhstan, highlighting the growing rift within the 23-nation alliance.
While speaking to reporters on Monday, Iraq's oil minister Jabbar Alluaibi said the group doesn't want another price war and don't need prices to go any higher than they are now, adding that he hoped a new date for a meeting would be set in the next 10 days
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