Oil markets rose around 1 per cent on Monday, pushed up by tensions in the Middle East where top crude exporter Saudi Arabia and other Arab states cut off ties with Qatar.
Saudi Arabia as well as the United Arab Emirates, Egypt, and Bahrain severed ties with top liquefied natural gas (LNG) and condensate shipper Qatar on Monday, accusing it of supporting extremism and undermining regional stability.
“There is not much geopolitical risk premium priced into oil right now, (but) if tensions do ratchet higher between the key OPEC producers, like Saudi Arabia, Iran and Iraq, then the market will start paying attention to this,” said Virendra Chauhan, an oil analyst at consultants Energy Aspects.
With a production capacity of about 600,000 barrels per day (bpd), Qatar’s crude oil output, one of OPEC’s smallest, is dwarfed by the near 10 million bpd churned out by the cartels de-facto leader, Saudi Arabia.
Still, Brent crude oil futures had risen 48 cents, or 1 percent, to $50.43 per barrel by 0713 GMT. U.S. West Texas Intermediate futures were at $48.14 a barrel, up 48 cents, or 1 per cent.
Crude futures were also supported by the physical market, where Saudi Aramco raised the July official selling prices for its Arab Light grade to all major regions of Asia, Northwest Europe, and the United States on Sunday.
Despite this, there are doubts that an effort led by the Organization of the Petroleum Exporting Countries (OPEC) to curb production by almost 1.8 million bpd was seriously denting actual exports.
While there was a dip in OPEC supplies between February and April, a report on Monday by Thomson Reuters Oil Research said that OPEC shipments likely jumped to 25.18 million bpd in May, up over 1 million bpd from April.
Reflecting doubts over the efficacy of OPEC’s ability to tighten the market, Brent futures are still down about almost 7 per cent from their open on May 25, when OPEC announced it would extend its production cut into 2018.
This is also partly because crude production in the United States, which is not participating in the cuts, has jumped by over 10 per cent since mid-2016 to 9.34 million bpd, close to levels by top producers Saudi Arabia and Russia.
“Investors continue to doubt the ability of OPEC to rebalance the oil market, with crude oil prices remaining under pressure amid further signs of rising U.S. oil production,” ANZ bank said on Monday.
The rise in U.S. production has been driven by a record 20th straight weekly climb in oil drilling for new production, with the rig count climbing by 11 in the week to June 2, to 733, the most since April 2015.