Crude benchmarks have narrowed their spread and rallied to seven and three-year highs after Opec+ abandoned a meeting amid differences between key producers.
Brent, the international benchmark under which two thirds of the world's oil is traded, rose 0.7 per cent to $77.77 a barrel at 11.40am UAE time, the highest since October 2018. West Texas Intermediate, the main North American gauge, was up more than 2.32 per cent at $76.90 a barrel, the highest level since November 2014.
The failure by Opec+ to reach an agreement on future production increases leaves the market undersupplied, with the planned return of 2 million barrels per day hanging in the balance.
WTI has gained about 58 per cent this year while Brent is up by about 50 per cent. Both benchmarks rallied in the first half of the year on the back of rapid vaccination campaigns in developed countries and the reopening of the US, Chinese and European economies.
The easing of Covid-19 movement restrictions has also given oil prices a boost as demand for energy continues to rise.
"Crude oil prices reached their highest levels since the second half of 2018 following the failure of Opec+ to reach a production agreement," said UBS strategist Giovanni Staunovo.
"With the oil market already in deficit and supply growth lagging oil demand growth, the crude market will likely tighten further this summer."
UBS raised its estimates for both Brent and WTI by $2 a barrel to $80 and $77, respectively, by September.
Opec+ postponed a much-delayed meeting scheduled for Monday night in order to consider the UAE's position on the baseline used to calculate its production quota.
The UAE, Opec's third-biggest producer, has urged the exporters' group to "decouple" output restrictions from plans to extend its existing agreement beyond April 2022.
According to estimates, the discrepancy between the baseline used to calculate the UAE's quota under Opec+ and its current production capacity is 18 per cent – the highest among the producers within the group.
"No announcement has been made for a next meeting, leaving the market hanging as to what happens to oil production from August onwards," said Daniel Richards, Mena economist at Dubai-based Emirates NBD.
"At present, the default option would appear to be that output remains at the same level from the end of July, leaving markets considerably more undersupplied than had been expecting."
Norbert Rücker, head economics and next generation research at Swiss bank Julius Baer said "the current basis for the quotas does not take into account the UAE’s recent capacity expansion and constrains the country more than any other petro-nation."
Deadlocks in Opec and the supergroup "are a common element", he added. "Cohesion was always fragile, and this particular rift had appeared before. Eventually, a compromise should prevail as shattering the deal leaves too much at stake."