Oil prices gain as Saudi Arabia cuts ties with Qatar

Marco Green
June 13, 2017

Benchmark Brent crude oil was down 29 cents a barrel at $49.18 by 11:18 a.m. EST (1518 GMT), down around 8 percent from its level before OPEC and its non-OPEC allies said they were extending cuts until March 2018.

Reflecting doubts over the efficacy of OPEC's ability to tighten the market, Brent futures are still down about nearly 7 percent from their open on May 25, when OPEC announced it would extend its production cut into 2018.

West Texas Intermediate, the USA benchmark for the price of oil, was down in parallel to $47.71 per barrel.

The EIA (U.S. Energy Information Administration) will release its weekly crude oil inventory report on June 7, 2017.

US stocks of crude oil and gasoline surprisingly rose last week as refinery runs declined and exports fell, official data showed on Wednesday.

Analysts said Qatar's isolation caused trade disruptions that offered some support for oil prices.

Leading Arab powers including Saudi Arabia, Egypt and the United Arab Emirates cut ties with Qatar on Monday, accusing it of support for Islamist militants and Iran. That confounded forecasters who had predicted a drop of 3.5 million barrels, especially a day after preliminary data from the American Petroleum Institute indicated an even bigger drop.

Official inventory data from the EIA will be published later on Wednesday. However, the brokerage said that price gains could be capped by what it called a "deeply bearish" macro-economic environment. Crude oil storage data are still at multiyear highs globally because many traders stored oil when it was selling cheap in the hopes of reselling at a profit when the price of oil increases.

Brent crude prices were at $48.32 U.S. per barrel mid-morning Wednesday, down $1.80, or 3.6%.

"In terms of oil flows it doesn't change very much but there is a wider geopolitical impact one needs to consider", Jakob added, explaining that a breakdown in relations between Qatar and Saudi Arabia could weaken the OPEC-led agreement on production cuts.

On May 25, OPEC and 10 non-OPEC partners including Russian Federation chose to roll over a 1.8 MMb/d production cut agreement into March 2018.

Yet, what was more disturbing perhaps, to the market, was a drop in implied demand for USA petroleum products across the board, raising concerns about the momentum of the US economy.

Domestic crude oil production in the States declined by 24,000 barrels per day last week.

In its monthly short-term energy outlook Tuesday, the EIA said US oil output average 10 million barrels per day in 2018 up from 9.3 million barrels per day now.

Earlier that same month, Saudi Aramco said it would cut crude supplies to China, South Korea, and South East Asia by 1 million barrels each.

Other reports by Click Lancashire

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