Oil prices slumped to their lowest level in around three weeks on Thursday amid rising investor uncertainty over supply, and concerns over spreading COVID-19 cases.
It comes after an aborted meeting of the Organisation of Petroleum Exporting Countries and its allies (OPEC+) this week, which failed to agree on a production deal.
The cartel had been due to meet on Monday to continue talks on future production levels but a disagreement between the United Arab Emirates and Saudi Arabia over production cuts boiled over and the meeting was cancelled at the last minute.
This derailed plans by OPEC+ to boost output in August and beyond to meet rising demand.
OPEC+ decided to slash production by nearly 10 million barrels a day last year as demand tumbled at the start of the COVID-19 pandemic. Oil prices have risen 50% since the start of the year as the world has begun relaxing COVID-era restrictions.
However, the UAE rejected a proposed eight-month extension to output curbs that OPEC+ had imposed on each other last year.
There is now rising speculation that the current production-cuts agreement could collapse and lead to a surge of oil onto the market, which would affect prices. It also raises the possibility of a price war should producers opt to boost output unilaterally.
According to reports, the UAE is now threatening to pump oil at maximum capacity in order to diversify its economy.
Brent crude (BZ=F) fell as much as 1.5% during the session to $72.30 per barrel, before recovering slightly late morning. The move lower, however, extended this week’s losses after hitting a near-three year high of $77.84 on Monday.
West Texas Intermediate was also down around 1.4% on the day.
Oil also dropped as cases of the coronavirus Delta variant, which was first detected in India, increased across the globe, with the World Health Organization urging caution on the pace of reopenings worldwide.
Indonesia is currently on the precipice of a major outbreak, while Thailand is mulling a partial lockdown, and Japan is planning to declare a state of emergency over the Tokyo Olympics.
Last month the International Energy Agency said oil demand is set to rise above pre-COVID levels by the end of 2022, but oil producers will need to boost production.
The Paris-based body expects consumption to rebound by 5.4 million barrels per day (bd) this year as vaccines are rolled out and economies reopen. Consumption declined by a record 8.6 million bd in 2020 as the coronavirus pandemic took a hold.
It expects a further 3.1 million bd increase in 2022, to average 99.5 million bd with an increase at the end of the year that will surpass the level of demand before the COVID pandemic.
Watch: What's behind the dispute between Saudi Arabia and the UAE? | Inside Story