The oil market tumbled more than 3 per cent on Tuesday as fear gripped the market following the cancellation of a meeting of producers as a result of disagreement to increase supply.
Consequently, the Brent crude fell to $74.55 per barrel after dropping $2.63 or 3.4 per cent, while the United States West Texas Intermediate (WTI) crude lost $1.79 or 2.4 per cent to settle at $73.47 per barrel.
On Monday, ministers from member states of the Organization of the Petroleum Exporting Countries and allies (OPEC+) abandoned talks after negotiations failed to close divisions between Saudi Arabia, the largest OPEC producer, and the United Arab Emirates.
Initially, oil rallied on news of the breakdown in talks, but prices retreated as traders focused on the possibility that the strife will cause some national producers to open the taps and start exporting more barrels.
The concern is that the UAE will unilaterally add barrels to the market and this will lead other producers in OPEC to follow suit.
OPEC voted on Friday to raise production by about 2 million barrels per day from August to December and to extend the remaining output reductions to the end of next year. This means returning 400,000 barrels a day every month to the market starting in August.
However, UAE resisted the agreement and sought to also have its production baseline increased from 3.1 million barrels a day to 3.8 million barrels/
The producer also said it would go along with output increases but rejected a separate proposal to extend curbs to the end of 2022 from the existing April deadline.
Many analysts have weighed in with Goldman Sachs, saying the failure of the discussions has clouded OPEC’s production policy. The bank, however, reiterated its expectation that Brent would rise $80 per barrel early next year.
Higher prices had also drawn criticism as it would mean more trouble for some economies due to inflation.
Iraq, OPEC’s second-highest producer, clearly stated that it did not want to see oil prices soaring above current levels and that hope that within 10 days a date would be set for a new OPEC+ meeting.