The breakdown of talks between OPEC and other key nations raised the possibility of $100 a barrel price
Oil extended gains in Asian trade Tuesday after a gathering of top producers fell apart without any agreement on a plan to lift output despite stockpiles shrinking and demand surging along with the global economic recovery.
The breakdown of talks between OPEC and other key crude nations raised the possibility of $100 a barrel and stoking fresh fears about inflation, which could force central banks to taper their monetary policy or hike interest rates earlier than thought.
Still, equity markets remained largely buoyant in early business, though the US Independence Day break Monday meant there were few buying catalysts. However, Hong Kong’s tech firms remained under pressure owing to fears that a new crackdown on the sector by Chinese authorities will make them unattractive to investors.
But eyes are on oil after Brent broke above $77 for the first time since 2018 while WTI also rallied.
The OPEC+ group on Monday cancelled a planned meeting that was supposed to overcome an impasse between the United Arab Emirates (UAE) and other members on how to lift output. No new date has been set.
The countries have been slowly lifting production in recent months after turning the taps down last year in response to a collapse in prices caused by virus lockdowns.
With demand rocketing on the back of the global rebound, officials had planned to hike output by 400,000 barrels a day each month from August to December, but the deadlock means no new supplies will be forthcoming.
The failure of OPEC+ to come to an agreement will only add further uncertainty to the oil market, Warren Patterson, of ING Group NV, said. Assuming we don’t get a quick resolution, the uncertainty over OPEC+ output in the months ahead does suggest increased volatility.
The brewing crisis has also brought inflation back into play, with the rally in commodities playing a key role in the spike in prices around the world in recent months.
The risk of oil at $100 a barrel is so correlated with short-run inflation that it will make the market very, very edgy, and we know that the Federal Reserve is both watching the economic data but also markets, Alan Higgins, at Coutts & Co, told Bloomberg TV.
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