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 Julytraded 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.
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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