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Worries Middle East Rift Will Undermine Output Cuts Results In Slide In Oil Prices

Worries Middle East Rift Will Undermine Output Cuts Results In Slide In Oil Prices
Hit by concerns that a political rift between Qatar and several Arab states would undermine an OPEC-led push to tighten the market, there was a fall for the third continuous day in the global oil prices.
Traders said that benchmark crude prices were also dragged down by persistent gains in U.S. production.
Down 20 cents, or 0.4 percent from its last close, Brent crude LCOc1 was trading at $49.27 per barrel at 0424 GMT. Compared to the trading price of the same index on May 25, when an OPEC-led policy to cut oil output was extended into the first quarter of 2018, that value was down 9 percent from the open of futures trading.
U.S. West Texas Intermediate (WTI) crude CLc1 had dropped 18 cents, or 0.2 percent, to $47.21 per barrel. That is down about 8 percent from the May 25 open.
Accusing Qatar of support for Islamist militants and Iran, leading Arab powers including Saudi Arabia, Egypt, and the United Arab Emirates cut ties with the country on Monday.
Preventing oil and liquefied natural gas (LNG) tankers to take on new shipping fuel and preventing ships coming from or going to the small peninsular nation to dock at Fujairah, in the UAE, were among the steps taken by the revolting Arab nations.
Compared to a similar rift in 2014., the current dispute goes much deeper, analysts said.
"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.
Tension within the Organization of the Petroleum Exporting Countries (OPEC), could weaken an agreement to hold back production in order to prop up prices even though Qatar's crude output ranks as one of the smallest among the Organization of the cartel with an oil production of about 620,000 barrels per day (bpd).
The boycott of Qatar meant there was "a real chance" that OPEC solidarity surrounding its production cuts may fracture, said Greg McKenna, chief market strategist at futures brokerage AxiTrader.
Traders said that other OPEC states could see such an action as a reason to stop restraining their own output even though Qatar is a small oil producer.
Amidst bulging supplies from elsewhere, especially the United States, this new worry over the outlook for OPEC's drive to rein in production adds to the tension in the global oil market.
At levels close to top producers Russia and Saudi Arabia, U.S. crude production has jumped over 10 percent since mid-2016 to 9.34 million bpd C-OUT-T-EIA.
"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," William O'Loughlin, analyst at Australia's Rivkin Securities, wrote in a note to clients on Tuesday.

Christopher J. Mitchell

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