Brent broke above $77 for the first time since 2018
Breakdown of talks raises the possibility of $100 a barrel
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 — a level not seen since 2014 — and stoked fresh fears about inflation, which could force central banks to taper their monetary policy or hike interest rates earlier than thought.
Equity markets were mixed in Asia, with the US Independence Day break Monday meaning there were few buying catalysts.
Hong Kong’s tech firms remained in focus owing to fears that a new crackdown on the sector by Chinese authorities will make them unattractive to investors.
But eyes were on oil after Brent broke above $77 for the first time since 2018 while WTI also rallied.
The OPEC+ group on Monday canceled a planned meeting that was supposed to overcome an impasse between the United Arab Emirates 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 coronavirus lockdowns.
With demand rocketing on the back of the global rebound — and the US holiday driving season underway — 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.
But while prices are spiraling higher, analysts said there were several possible scenarios. In one, there is no deal and no increase in production, sending oil prices shooting up, while another sees the grouping falling apart and countries fighting for market share by slashing prices.
“The failure of OPEC+ to come to an agreement will only add further uncertainty to the oil market,” said Warren Patterson from ING Group NV.
“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.
On equity markets, Tokyo, Singapore, Seoul, Mumbai, Bangkok and Jakarta all rose but Shanghai, Sydney, Wellington, Taipei and Manila were in negative territory.
Traders are now awaiting the release of minutes from the US Federal Reserve’s June meeting hoping for an idea about its plans for monetary policy as the recovery in the world’s top economy thunders along.
London, Paris and Frankfurt were all down in the morning. (AFP)