Crude futures shot higher on Monday after a political rift in
the Middle East escalated when Saudi Arabia and three other
countries severed diplomatic ties with Qatar.
Saudi Arabia, Egypt, Bahrain, and the United Arab Emirates all
cut ties with Qatar on Monday, accusing
it of meddling in their internal affairs and backing terrorism.
Last month, Qatar’s state-controlled news agency posted
comments purportedly from its emir that praised Iran and called
Hamas the legitimate representative of the Palestinian people.
Qatar said its state news agency had been hacked, but Saudi
Arabia, the U.A.E., Bahrain and Egypt nevertheless blocked the
websites of several Qatari news outlets.
Oil traders are sensitive to Middle East tensions because they
worry about supply disruptions, analysts say.
On the New York Mercantile Exchange, light, sweet crude futures
for delivery in July
recently traded at $48.38 a barrel, up 72
cents, or 1.5% in the Globex electronic session. August Brent
on London’s ICE Futures exchange rose 74 cents, or 1.5%,
to $50.68 a barrel.
However, the latest developments don’t appear to have a direct
impact on oil production and exports, said Phin Ziebell, an
economist at National Australia Bank, noting that the jump was
largely a knee-jerk speculative move.
‘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.’
— Phin Ziebell, National Australia
Still, market participants will be watching to see if Qatar, a
member of the Organization of the Petroleum Exporting
Countries, decides to disrupt 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.
Late last year, OPEC agreed to cut its production by 1.2
million barrels a day to reduce a supply glut. At first, the
move lifted global prices, but much of those gains have been
erased due to rising output from the U.S. and Libya. The
program of cuts has been extended to next March.
Oil took a beating last week by dropping more than 4%, the
largest weekly decline since early May. Sentiment deteriorated
further after data from industry group Baker Hughes on Friday
showed U.S. oil drillers adding 11 more active rigs in the week
ended June 2. That marked a 20th consecutive weekly rise.
U.S. crude production has averaged more than 9.3 million
barrels a day for four straight weeks. The government now
expects production to reach nearly 10 million barrels a day
Meanwhile, the head of Russia’s largest oil producer, Rosneft,
expressed doubt that the OPEC cuts would lift oil prices in the
long run. He said producers who weren’t included in the
reduction pact, like Nigeria and Libya, have been actively
“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,” said Rosneft Chief Executive Igor
Sechin, at an energy conference in Russia over the weekend.
Nymex reformulated gasoline blendstock for July
— the benchmark gasoline contract — rose 63
points to $1.5834 a gallon, while July diesel traded at
$1.4957, 109 points higher. ICE gasoil for June changed hands
at $444.00 a metric ton, up $5.50 from Friday’s settlement.