Oil slides due to Gulf diplomatic crisis

As diplomatic clash emerges between OPEC member, specifically between Saudi Arabia and Qatar, earlier gains of oil has erased out. Futures slipped 0.6% in New York, erasing an earlier gain of 1.6%. Saudi Arabia, Bahrain, the United Arab Emirates and Egypt said they will suspend air and sea travel to and from Qatar, escalating a crisis that started over its relationship with Iran.

While the diplomatic spat hasn’t affected shipments, any further escalation could raise the prospect of supply disruptions from the Middle East, including Organization of the Petroleum Exporting Countries members Saudi Arabia, Iran and Qatar.

The nations all use the Strait of Hormuz, through which the US Department of Energy estimates about 30% of seaborne oil trade passes. Crude had fallen in three of the previous four sessions amid concern that an extension of Opec’s cuts won’t be enough to shrink global inventories as US output expands.

Tamas Varga, an analyst at PVM Oil Associates Ltd in London, said, “Given the persisting bearish sentiment in the oil market, the unprecedented move might not have a long-lasting impact on oil prices, but it is worth keeping in mind.”

West Texas Intermediate for July delivery slipped 43 cents to US$47.23 a barrel on the New York Mercantile Exchange at 1:48 pm in London. Total volume traded was about 50% above the 100-day average. Prices lost 70 cents to close at US$47.66 on Friday, capping a 4.3% decline for the week.

Brent for August settlement fell 49 cents to US$49.46 a barrel on the London-based ICE Futures Europe exchange. Prices fell 4.2% percent last week. The global benchmark crude traded at a premium of US$2.04 to August WTI.

While OPEC members have fought political disputes and even wars through the organization’s 57-year history, their shared economic interests have meant policies on oil production have still been implemented. The same will probably happen during the current dispute, said Abdulsamad Al-Awadhi, a London-based analyst who was one of Kuwait’s representatives to the group between 1980 and 2001.
Drillers targeting crude in the US added rigs for the 20th straight week to the highest level since April 2015, according to data Friday from Baker Hughes Inc. American producers are pumping at a rate of 9.34 million barrels a day, according to data from the Energy Information Administration.

The OPEC-led deal to curb output won’t stabilize the market over the long term as US shale fills the supply shortfall, according to the chief executive officer of Russia’s Rosneft Oil Co PJSC. Saudi Arabia raised pricing for July sales of all crude grades to Asia, the US and Northwest Europe as it seeks to take advantage of increased demand after suppliers extended output cuts. Hedge funds trimmed bets on rising WTI prices to the lowest level since November.