Oil prices soared to their highest in almost three years on July 5 following the indefinite postponement of talks between Organization of the Petroleum Exporting Countries (OPEC) and allied oil producers after they failed to reach a consensus on the oil production policy for August and beyond.

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The US oil benchmark, West Texas Intermediate crude futures, reached its highest level since October 2018 after it rose 1.56 percent to $76.33 per barrel. International benchmark Brent crude stood at $77.10 per barrel after a 1.2 percent rise.

Recovery from pandemic-induced crash

Oil prices had crashed globally during the COVID-19 pandemic. Prices in the US went negative for the first time ever. But by March this year, they had recovered their losses and managed a 20 percent surge. Oil producers have cut production by about 10 million barrels per day, and are still supplying close to 5.8 million lesser barrels as compared to pre-pandemic levels. In June, the OPEC+, a union of OPEC and 10 other oil-exporting nations, agreed to increase oil output by 450,000 barrels per day from July.

Even though lockdowns are being eased and vaccination is picking up pace, oil producers are being cautious as far as supply is concerned. OPEC+ decided on cutting down on production in order to stabilize prices amid the turmoil.

Discussions on the road ahead for OPEC+

After the demands for oil plummeted to an all-time low in April 2020, OPEC+ removed nearly 10 million per day from production in an attempt to support its prices.

OPEC+ led by Saudi Arabia has since organised monthly meetings with an aim to navigate production policy, which led to a stand-off between the UAE and Saudi Arabia.

The OPEC+ began discussions to deliberate on an output policy for the rest of 2021. On July 2, they voted on a proposal of increasing production by 2 million barrels per day from August to the end of the year and extending the output cuts through the end of 2022. They couldn’t reach an agreement in this meeting, and a follow-up meeting was scheduled for July 5, which later got called off.

The United Arab Emirates rejected these plans and claimed its “sovereign right” to negotiate fairer terms for an oil production increase.

OPEC later said that the date of the next meeting will be decided in due course and as per a Bloomberg report, it meant OPEC+ will move ahead with production at the current levels.