Oil futures turned sharply lower Tuesday after the U.S. benchmark hit a six-year high, reflecting uncertainty over the outlook for global crude production after talks between the Organization of the Petroleum Exporting Countries and its allies collapsed a day earlier, failing to deliver a further boost to crude output.

West Texas Intermediate crude for August delivery
CL00,
-2.17%

CLQ21,
-2.17%

was down $1.87 cents, or 2.5%, at $73.29 a barrel on the New York Mercantile Exchange. The U.S. benchmark traded at a session high of $76.98, its loftiest level since November 2014. The global benchmark, September Brent crude
BRN00,
+0.16%

BRNU21,
+0.16%

was off $2.66, or 3.5%, at $74.50 a barrel on ICE Futures Europe, after hitting $77.84 for its highest level since 2018.

The move marked a “classic reversal,” said Robert Yawger, executive director of energy futures at Mizuho Securities, in a note.

The OPEC+ group in April 2020 agreed to cut production by 10 million barrels a day. It has subsequently brought a portion of that output back on the market as demand has recovered from the COVID-19 pandemic. But a proposal to further ease curbs, allowing production to rise by another 2 million barrels a day by the end of the year ran into a snag after the United Arab Emirates insisted it should be allowed to raise the baseline used to determine its output level.

The inability to reach an agreeement “initially supported the market under the assumption that no deal would add zero barrels to the market through 2022,” Yawger said.

That changed in just a few hours, however, giving way “to a fear that no deal might actually see the United Arab Emirates unilaterally add the 600,000 barrels they were seeking to their baseline quota, with other member countries also adding barrels, with the potential for a repeat of the March 2020 price war,” he said.

Heading into the OPEC+ meeting that was initially set for last Thursday, market participants had anticipated that major producers would agree to a proposal that would ease output restrictions, allowing production to rise by around 400,000 barrels day per month from August through December, bringing a total of around 2 million barrels a day back onto the market in response to growing demand.

Analysts said a scenario where producers stick to the initial agreement and don’t bring additional crude onto the market over the remainder of the year would be bullish, underlining calls for crude to hit $80 or even $100 a barrel in coming months.

At the same time, they noted that past episodes of dissent within OPEC have sparked massive price slides as producers boosted output.

The longer the standoff persists, “the more likely that we start to see compliance slip, and the deal slowly fall apart,” said Warren Patterson, head of commodities strategy at ING, in a note. “This would be a scenario that OPEC+ would want to avoid, given that there is still a large amount of uncertainty over the demand outlook.”

August gasoline
RBQ21,
-2.97%

fell 2.9% to $2.2321 a gallon, while August heating oil
HOQ21,
-3.19%

was off more than 3% at $2.1082 a gallon.

August natural-gas futures
NGQ21,
-1.32%

declined 2.1% to $3.623 per million British thermal units.

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