Middle East Political Uncertainty Weighs on Oil Price

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Oil prices bounced around low levels in choppy trading today, with Brent crude holding below US$50 over concerns that a political rift between Qatar and several Arab states would undermine efforts by Opec to tighten the market.

The declines in the global crude oil market also trickled down to the energy sector of the USA stock market as the S&P 500 energy sector lost 1.8% in the trading session. West Texas Intermediate, the US benchmark price for the price of oil, was down 0.84 percent to $47.76 per barrel.

On the New York Mercantile Exchange, light, sweet crude futures for delivery in July CLN7, -0.49% traded at $47.04 a barrel, down 16 cents, or 0.3%, in the Globex electronic session.

Kuwait's ruler Sheikh Sabah Al Ahmad Al Jaber Al Sabah will travel to Saudi Arabia on Tuesday to mediate an end to the feud between Qatar and a Saudi-led alliance, which accuses the Gulf state of terrorism links.

While the OPEC and non-OPEC producers agreed to extend until March 2018 their ongoing oil output cuts, India has reached an understanding with the global oil cartel to establish a joint working group to serve as a forum for "producer-consumer dialogue" to address mutual concerns. That was down over 7.5 percent from May 25.

Steps taken include closing down transport links with Qatar and preventing ships coming from or going to the small peninsular nation.

A map of Qatar is seen in this
A map of Qatar is seen in this

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. Though on its own, Qatar is a small producer in the OPEC, if Iran and Qatar join hands, they can easily puncture the production cut deal.

The January implementation of an agreement led by the Organization of Petroleum Exporting Countries, with help from key producers like Russian Federation, helped establish a floor under crude oil prices of around $50 per barrel during most of the first half of the year.

Qatar is interested in keeping its position in the OPEC deal and the agreement is not endangered by severed diplomatic relations between the country and the UAE, Bahrain, Saudi Arabia and Egypt, Russia's Permanent Representative with OPEC Vladimir Voronkov told TASS on Monday.

In this video, Stratas Advisors' executive vice president John Paisie explains the geopolitical, currency, trade, operational and supply factors contributing this week's oil prices.

Many traders still see the main reason for low and falling oil prices as bulging supplies from the United States.

That's because crude production in the United States, which is not participating in the cuts, has jumped by over 10 percent since mid-2016 to 9.34 million bpd, close to levels by top producers Saudi Arabia and Russian Federation.

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