Oil prices touched their highest levels in years Tuesday, a day after OPEC, Russia and their allies failed yet again to reach agreement on production increases. A teleconference planned for Monday never started, after meetings Thursday and Friday that did not reach a deal.
West Texas Intermediate, the U.S. bench mark, rose as high as $76.98 a barrel earlier Tuesday, its highest in more than six years, before retreating. By the close, its price was down 2.4% to $73.37 a barrel. Brent crude, the global bench mark, dropped nearly 2.9% to $74.91 a barrel.
The volatility 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 the 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 Tuesday, analysts at Goldman Sachs wrote that many OPEC Plus countries had not made the investments to increase output to meet 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 3 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 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 2 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.
The split between Saudi Arabia and the United Arab Emirates has been unusually personal and public. Previous disputes between the countries were resolved privately, but this time around their energy ministers were communicating through rival TV interviews.
Other members of the OPEC Plus coalition haven't given up on a deal. Iraqi Oil Minister Ihsan Abdul Jabbar said Monday that he hopes to "witness a date" within the next 10 days for another meeting. The group should still be able to find a deal that satisfies everyone, he said.
The country with the greatest incentive to bring its allies back to the table is also one of the most powerful members of the coalition -- Russia. Its companies are keen to boost output in August, but need several weeks notice to do so. Rising domestic gasoline prices are an issue of growing importance before the parliamentary elections in September.
Moscow's failure to secure its desired production increase was a rare setback for Deputy Prime Minister Alexander Novak, one of the original architects of the OPEC Plus alliance. He made no comment after the cancellation of Monday's meeting.
With the rapid run-up in oil prices, the average price of a gallon of regular gasoline in the United States has risen to $3.13, according to AAA, up from $3.05 a month ago. AAA said Tuesday that U.S. gas prices were expected to increase another 10 cents to 20 cents through the end of August.
Information for this article was contributed by Stanley Reed of The New York Times and by James Herron, Anthony Di Paola and Grant Smith of Bloomberg News (WPNS).