The oil price hit a six-year high on Tuesday, after discussions between the world’s biggest oil-producing nations and their allies – known as OPEC.

OPEC+ first rolled out a host of production cuts during the pandemic in an effort to boost the oil price, and it met again last week to discuss finally dialing them back. But the talks were scuppered by a disagreement between Saudi Arabia – the group’s de facto leader – and the United Arab Emirates.

Short of a change of heart, that means current production limits will stay in place for at least another month. That’s not ideal: this tiff is depriving pandemic-battered economies of the oil they need to get back on their feet. The prospect of a major imbalance of supply and demand, then, sent oil’s price to almost $80 a barrel – its highest since 2014.

How Do Oil Futures Contracts Work?

For example, suppose that Commodity X, which currently sells at $30, will be available for $35 in a contract dated to come due next January. A speculator who thinks that the price will, in actuality, shoot past that, say to $45, by said time can thus purchase the $35 contract. If their prediction is correct, they can then buy X at $35 and immediately sell it for a $10 profit. But should X end up falling short of $35, their contract is worthless.

Investors, for their part, seem wary of exactly that: the prices of oil futures contracts are lower than the current price of oil.

The bigger picture: The ECB shakes things up.
Higher oil prices – which increase the costs of energy and gas – tend to lead to higher inflation, so the world’s central banks will be keeping a close eye on how the situation gets resolved. None more so than the European Central Bank, which is meeting this week to discuss tweaking its inflation target – a shift in strategy that’d be one of its most significant in two decades.