Tuesday’s surge in oil prices was caused by major producers like Saudi Arabia and the United Arab Emirates quitting over plans to increase their production to meet rising global demand.
The Brent crude oil price, which is the global benchmark, jumped roughly 50% to $77 per barrel, reaching its highest point since October 2018.
US oil futures rose 1.5% to $76.32, an amazing recovery from April 2020 when prices plummeted to below $40 per barrel.
This surge follows the cancellation of a Monday meeting by the Organization of Petroleum Exporting Countries (OPEC) and its allies including Russia and Mexico to discuss plans for lifting production restrictions as oil demand recovers from the coronavirus pandemic.
After producers failed to reach an agreement on production increases, the talks were rescheduled for last week. There is no new date set for the meeting.
OPEC+ has slowly increased production, which it had aggressively cut during the last year’s oil crisis. As economies reopen and manufacturing resumes, oil demand is increasing and prices are rising.
As Americans hit the roads for the Fourth of July, they were met by a seven-year high at gasoline prices. This added to the inflation headaches already plaguing the economy. The average cost of a gallon of regular gasoline in the United States is $3.13. This represents an increase of 95 cents or 44% over a year ago.
Analysts believe that OPEC+ should pump more oil to meet rising demand. However, members of the alliance differ on how much oil should go back into global supply.
The United Arab Emirates is an OPEC member and has made significant investments in recent years to increase its production. However, it has argued publicly against the base from which its share of cuts is calculated. In 2020, the UAE was OPEC’s third-largest producer.
Suhail Al Mazrouei, UAE Energy Minister, stated that the current agreement was not fair. He claimed that it had been forced into idle one-third of its production, while other countries were allowed more in proportion to their maximum output.
“We cannot extend the agreement, or make a new deal under the same conditions. In a Sunday televised interview, the minister stated that the sovereign right exists to negotiate this.
For long years, close ties have existed between the UAE and Saudi Arabia (the de facto leader) of OPEC.
Analysts said that tensions between the two countries have escalated in recent years, which could contribute to the current OPEC deadlock. Some OPEC observers see a possibility that the UAE could abandon the cartel.