OPEC and its allies abruptly called off their July 5 meeting, after a flurry of mediation efforts failed to resolve a Saudi-UAE standoff, raising the risks that the producer group could steer the market into a supply squeeze if it sticks to current quotas -- or potentially a bruising price war if the coalition collapses.

No date has been set for a rescheduled meeting, though delegates said members were still holding backchannel consultations to try and broker a deal between the Persian Gulf neighbors and growing rivals.

Front-month ICE Brent futures were up in the wake of the meeting's cancellation, trading at $77.16/b at 1700 GMT, their highest in almost three years.

Ministers had planned to convene for a third day of official talks, having taken the weekend for a cooling-off period. But OPEC+ sources said that neither side has budged, making the meeting pointless.

Saudi Arabia wants to tie a series of monthly OPEC+ production increases to lengthening the group's supply management pact through the end of 2022, while the UAE insists that its output target be increased before signing off on the extension.

The impasse has left an oil market thirsting for crude on tenterhooks since the talks began July 1, with many forecasters warning of a potential price spike if the 23-country alliance does not further unwind its production cuts. The coalition is currently withholding 5.8 million b/d of output.

The stalled deal in question calls for OPEC+ countries to increase production by 400,000 b/d each month starting in August and remain bound to collective market management beyond the original April 2022 expiry through the full year.

Failure to reach a consensus -- all OPEC+ decisions must be unanimous -- would revert the alliance to its existing production agreement, under which output quotas would remain flat at July levels. That would squeeze an already tight market, as global economies continue to recover from the pandemic, boosting oil consumption.

By many estimates, even the mooted production increases would be insufficient in the short-term.

"There is very little doubt that whatever OPEC agrees by way of lessening of the cutbacks, it will surely ... be a fraction of that amount needed to meet demand," said Mike Muller, who heads Asia operations for trading house Vitol, on a Gulf Intelligence webinar.

S&P Global Platts Analytics forecasts global oil demand could rise 8.8 million b/d from June to December.

But a pump-at-will price war also cannot be ruled out, if the dispute escalates, which would be a repeat of the market-crashing battle in April 2020, when Russia and Saudi Arabia split on production policy and quotas were briefly abandoned.

"In the absence of coordination and understandings between the members of OPEC, the beginnings of a price war will be formed again," Mazhar Muhammed Salih, an adviser to Iraqi Prime Minister Mustafa al-Kadhimi, told the state-run Iraqi News Agency.

Under the current deal, each country's baseline production level is determined by what it pumped in October 2018, except for OPEC+ co-leaders Saudi Arabia and Russia, who were given identical 11 million b/d benchmarks.

For the UAE, its baseline is 3.168 million b/d, but it wants that raised to reflect its present production capacity, or about 4 million b/d.

UAE officials have pointed out that the country has about 35% of its capacity shut in, compared to an average of 22% for other members.

UAE energy minister Suhail al-Mazrouei told CNBC on July 4 he is not opposed to the proposed production hikes but wants to decouple the deal's extension and decide that at a later date.

"The UAE believes that the market needs an increase in production and supports an increase from August," its energy ministry said in a statement. "There is plenty of time to review terms for its extension and we see no need for such a condition to be included at this time."

Saudi Arabia maintains the entire package deal must be considered. Monthly 400,000 b/d rises would wipe out the group's remaining 5.8 million b/d in cuts by September, and an extension through December would provide some flexibility if the increases need to be paused due to market conditions or a new Iran nuclear deal.

OPEC+ sources also said the UAE's stance came as a surprise, as it had never raised concerns about its baseline in any previous meeting, and they were wary of creating an opening for other members in search of higher quotas.

"We have made fantastic achievements in 14 months, and it would be shameful for us not to maintain them," Saudi energy minister Prince Abdulaziz bin Salman told the Al-Arabiya network July 4, referring to the market's steady ascent since it bottomed out.

He added that Saudi Arabia, which has made several unilateral extra production cuts to help prop up the market, had sacrificed the most among the coalition. But he said he had not given up all hope of a deal.