Oil subdued on worries Middle East rift will undermine output cuts
By Henning Gloystein
SINGAPORE (Reuters) – Oil prices bounced around low levels in choppy trading on Tuesday, with Brent crude holding below $50 over concerns that a political rift between Qatar and several Arab states would undermine efforts by OPEC to tighten the market.
Persistent gains in U.S. production also dragged on benchmark crude prices, traders said.
Brent crude was trading at $49.53 per barrel at 0658 GMT, up 6 cents, or 0.1 percent from its last close. However, that is still down around 8 percent from the open of futures trading on May 25, when an OPEC-led policy to cut oil output was extended into the first quarter of 2018.
U.S. West Texas Intermediate (WTI) crude was at $47.45, up 5 cents, or 0.1 percent. That is down about 7 percent from the May 25 open.
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.
Steps taken include preventing ships coming from or going to the small peninsular nation to dock at Fujairah, in the UAE, used by Qatari oil and liquefied natural gas (LNG) tankers to take on new shipping fuel.
Analysts said that the current dispute goes much deeper than a similar rift in 2014.
“The measures by the anti-Qatar alliance signal commitment to forcing a complete change in Qatari policy or creating an environment for leadership change in Doha … Saudi Arabia and its allies will not accept any solution short of (Qatari) capitulation,” political risk consultancy Eurasia Group said in a note.
With oil production of about 620,000 barrels per day (bpd), Qatar’s crude output ranks as one of the smallest among the Organization of the Petroleum Exporting Countries (OPEC), but tension within the cartel could weaken an agreement to hold back production in order to prop up prices.
Greg McKenna, chief market strategist at futures brokerage AxiTrader, said that the boycott of Qatar meant there was “a real chance” that OPEC solidarity surrounding its production cuts may fracture.
Although Qatar is a small oil producer, other OPEC states could see such an action as a reason to stop restraining their own output, traders said.
Some traders, however, said worries about the impact on oil supplies from the diplomatic spat had been overblown.
“The OPEC agreement stands and is highly unlikely to change because of tension with Qatar. Crude production in the Middle East will not change because of Qatar,” said Oystein Berentsen, managing director for oil trading company Strong Petroleum in Singapore.
Many traders still see the main reason for low and falling oil prices as bulging supplies from the United States.
U.S. crude production has jumped over 10 percent since mid-2016 to 9.34 million bpd, levels close to top producers Russia and Saudi Arabia.
“The relentless increase in U.S. oil production appears to have the market worried that the OPEC cuts will be completely nullified by the increased U.S. production,” said William O’Loughlin, analyst at Australia’s Rivkin Securities.
(Reporting by Henning Gloystein; Editing by Joseph Radford and Christian Schmollinger)