Oil Prices Surge On Cancelled OPEC Talks

Output increases are feared, but global economic recovery continues unabated: File Image/Pixabay

With the halt of Organization of the Petroleum Exporting Countries (OPEC) output talks interpreted to mean there's no deal to boost production, traders caused a 1 percent-plus surge in crude prices on Monday.

Even though OPEC setting no date to resume the talks could also herald the possibility of members increasing output and upsetting supply and demand as world economies recover from the pandemic-induced lockdowns, Brent on Monday rose 94 cents, or 1.2 percent, at $77.11 per barrel by 1652 GMT.

West Texas Intermediate gained $1.11, or 1.5 percent, to $76.27 per barrel.

The OPEC talks were effectively scuttled by the United Arab Emirates, which on Friday blocked a plan to lift output by about 2 million barrels per day (bpd) from August to December 2021 and to extend the deal over several output shifts to the end of 2022.

The UAE had been seeking a higher baseline before agreeing to OPEC's plan, and it was revealed on Monday that this sentiment was shared by Azerbaijan, Kazakhstan, Kuwait, and Nigeria.

Helima Croft, head of global commodity strategy at RBC Capital Markets, pointed out that "How the deal dies will matter for markets: an unambiguously bullish outcome would be if the group simply opts to stick with the original tapering timeline and signals its intent to keep 5.8 million bpd off the market until April 2022."

Most analysts think the least desirable outcome - a price war - is unlikely and that the dispute among OPEC members will soon be resolved.

Meanwhile, Monday's trading was also supported by reports that Euro zone businesses expanded activity at the fastest rate in 15 years in June, as easing coronavirus restrictions revived the service industry: IHS Markit's final composite Purchasing Managers' Index (PMI) jumped to 59.5 last month from May's 57.1, its highest level since June 2006.

Mateusz Urban, analyst at Oxford Economics, said, "At the same time, backlogs and producer price pressures show no signs of abating."