Oil prices finished lower Monday as Saudi Arabia and three
other countries cut ties with Qatar, raising uncertainty about
Middle East oil production.
Saudi Arabia, Egypt, Bahrain, and the United Arab Emirates all
severed diplomatic ties with Doha on
Monday, accusing it of meddling in their internal affairs
and backing terrorism, which the country denies.
On the New York Mercantile Exchange, July West Texas
fell 26 cents, or 0.6%, to settle at $47.40 a
barrel. August Brent crude
on London’s ICE Futures exchange slipped 48 cents, or 1%,
to $49.47 a barrel. The settlements for both benchmark crudes
were the lowest in just under a month.
Oil prices had reversed a gain of more than 1% seen earlier in
the European session and in Asian trading.
“Generally, increased tensions in the Middle East props up oil
prices with a fear bid, but the dynamic of this Qatar issue is
different because it is largely between Saudi Arabia and Iran,”
Tyler Richey, co-editor of the Sevens Report, told MarketWatch.
“The likelihood of military action between the two major OPEC
members is pretty slim which means that the chances of
production outages is also low,” he said. “The rift, however,
is jeopardizing the global production agreement as rising
tensions between OPEC members could result in the entire
quota-policy-deal falling apart.”
Qatar is a member of the Organization of the Petroleum
Exporting Countries but isn’t a significant crude producer,
market strategists said.
‘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
Late last year, OPEC and other non-OPEC members agreed to cut
its production by 1.8 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 has taken a beating, dropping more than 4% last week, 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—a 20th consecutive weekly
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
next year. The Energy Information Administration will issue its
month Short-term Energy Outlook report Tuesday.
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
Back on Nymex, July gasoline
shed 3.9 cents, or 2.5%, to $1.538 a gallon
and July heating oil
lost 2.6 cents, or 1.7%, to $1.459 a gallon.
July natural gas
fell 1.7 cents, or 0.6%, to end at $2.982 per million
British thermal units—for the lowest finish since mid-March.