Oil prices retreated Tuesday after hitting their highest level in six years amid concern over the lack of an OPEC agreement on increasing production.
Futures for West Texas Intermediate crude, the U.S. oil benchmark, for August initially traded as high as $76.98 per barrel Tuesday, a price not seen since November 2014, while Brent crude reached its highest level since late 2018.
The price surge followed news that OPEC ended its meeting Monday after the United Arab Emirates objected to aspects of a deal to return 400,000 barrels a day to the market starting in August.
The gains faded later in the day, with the WTI contract for August ultimately settling down 2.38%, or $1.79, at $73.37 and Brent crude finishing the session $2.63, or 3.4%, lower at $74.53.
Even with Tuesday’s slide, U.S. crude prices have advanced more than 50% this year, reflecting the revival in consumption of fossil fuels as Covid-19 vaccines roll out and major economies unlock. OPEC and its allies, led by Russia, have continued to hold millions of barrels a day in the ground each day, limiting supplies.
“It’s going to get worse before it gets better. I still think $85 to $90 per barrel should be the upper end,” John Kilduff, partner with Again Capital, told CNBC. “You’ll see more oil produced. They’re not going to go crazy, but they’re not going to live within the current structures. Russia will lead the charge.”
“It could become a free for all,” he added.
Some analysts say the lack of an OPEC agreement could further boost prices if that results in key producers continuing to curtail output. The world is currently short of upwards of 2 million barrels a day, based on current production levels and increasing demand.
“The market needs to see supply increasing,” Warren Patterson, head of commodities strategy at ING Groep, said in a note
At the latest OPEC talks, the UAE, which is pursuing ambitious plans to expand and modernize its economy, sought to have its oil production baseline increased from 3.1 million barrels a day to 3.8 million barrels, but its powerful neighbor, Saudi Arabia, objected.