Crude futures jumped on
Monday after a political gap in the Middle East intensified when Saudi Arabia
and three other countries detached diplomatic ties with Qatar and moved to
access to the Gulf country, raising tensions in the world’s biggest
oil-producing region.
Saudi Arabia, Egypt, Bahrain,
and the United Arab Emirates all cut ties with Qatar, the top liquefied and
natural gas (LNG) and condensate shippers, accusing to have meddled in their
internal affairs and supporting terrorism on Monday.
Last month, Qatar’s
state-controlled news agency posted comments allegedly from its leader that
commended Iran and called Hamas the legitimate representative of the
Palestinian people. Qatar said its state news agency had been hacked,
nevertheless, Saudi Arabia, the U.A.E., Bahrain, and Egypt blocked the websites
of some Qatari news outlets.
“There is not much
geopolitical risk premium priced into oil right now (but) if tensions do
ratchet higher between the key OPEC producers, like Saudi Arabia, Iran and
Iraq, then the market will start paying attention to this,” Virendra Chauhan,
an oil analyst at consultants Energy Aspects.
Oil traders are sensitive to
Middle East tensions because they are anxious about supply disruptions,
analysts said.
Futures increased as much as
1.6% in New York, paring the biggest weekly loss in a month. Saudi Arabia,
Bahrain, the UAE and Egypt said they will suspend air and water travel to and
from Qatar. Prices slumped last week amidst concern that rising U.S. output
will weaken supply curbs by OPEC and its partners.
On the New York Mercantile Exchange, today, the
light, sweet crude futures for delivery in July, traded at $48.08 a barrel, up 35 cents, or 0.73%
in the Globex electronic session.
August Brent crude on London's ICE Futures exchange
traded 31 cents, or 0.62%, to $50.39 a barrel.
West
Texas Intermediate for July delivery increased as much as 76 cents to $48.42 a
barrel and was at $48.28 by 12:41PM in Hong Kong. Total volume traded was about
33% above 100-day average.
However, Phin Ziebell, an economist at National
Australia Bank, said that the recent developments don’t seem to have a direct
impact on oil production and exports. Noting that the jump was largely a
knee-jerk speculative move.
Still, market contributors will be watching to see
if Qatar, a member of the Organization of the Petroleum Exporting Countries,
chooses to interrupt the production cutback deal.
"This
means Qatar may have little reason to keep the production quota and if that
happens, it might encourage other OPEC members to cheat too, " said
Ziebell.
On
the other hand, oil took a beating last week by dipping more than 4%, the
largest weekly weakening since early May. Sentiment worsened further after data
from an industry group Baker Hughes on Friday showed U.S. oil drillers adding
11 more active rigs in the week ended June 2.
U.S.
crude production has been closed to more than 9.3 million barrels a day for
four straight weeks. The government now is looking forward to seeing production
reaching nearly 10 million barrels a day next year.
Meanwhile,
Rosneft, the head of Russia’s largest oil producer, expressed doubt that the
OPEC cuts will increase oil prices in the long run. He said producers who were
not included in the reduction pact, like Nigeria and Libya, have been actively
lifting output.
“A
number of large-scale oil producers that do not take part in these agreements
use such conditions to strengthen their market positions, and that leads rather
to new imbalance than to the sustainable development,” Rosneft added, at an
energy conference in Russia over the weekend.
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Oil Prices Jump following Middle East Nations Cut Qatar Ties over Iran
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