07 June 2017 at 11:20 GMT
- Qatar spat having limited impact on oil price so far
- Short-term impact is negative if escalation undermines current production cuts
- Longer term a conflict would boost prices due to worries of supply disruption
- Oil market focusing on weekly EIA inventory report due at 1430 GMT
- WTI finding support at $46.9/b; break above $48.75 needed to draw short-covering
Qatar is in the eye of a storm between rival
oil producers. Photo: Shutterstock
By Ole Hansen
Renewed tensions in the Middle East have so far failed to add a risk premium to the price of oil.
The Qatar spat once again highlights the sub-surface simmering sectarian strife between major producers led by Saudi Arabia and backed by the US on one side and Iran backed by Russia on the other.
In the short term, the market sees a possible escalation as oil-negative given its potential impact on the Opec and non-Opec producers' ability or willingness to maintain current production cuts.
A sectarian conflict would undoubtedly become a market-positive factor, as seen in the past, with a risk premium returning in response to fear that supplies from the region could be disrupted.
At this stage, however, the risk to the production cut deal breaking down is seen as a bigger danger than an escalating conflict. The world remains awash with oil, and additional barrels continue to reach the market. Today Royal Dutch Shell
has announced the lifting of export restrictions, in place for 472 days, from its Forcados oil field in Nigeria. The lifting could see this field increase production to its potential of 250,000 barrels per day.
The Energy Information Administration in its monthly 'Short-Term Energy Outlook
' has raised its US 2018 production forecast to a record 10 million b/d, which would exceed the previous record of 9.6 million b/d set in 1970.
Ahead of "super Thursday" when the European Central Bank meets, former FBI head James Comey testifies in Washington, and the UK goes to the polls, the oil market will be focusing on today's weekly EIA inventory report at 1430 GMT.
The American Petroleum Institute last night reported a big drop in crude oil inventories. But price support from this was quickly eroded by a bigger-than-expected rise in fuel stocks. Last week the report provided support, with oil and fuel inventories as well as imports falling. Against this we saw exports hit a record 1.3 million b/d, while production continued to rise, albeit at a slower pace than in the first quarter.
WTI crude oil has been finding support at $46.9/b, a key 61.8% retracement of the pre-Opec rally. Short sellers provide most of the volatility at this stage, and a break above $48.75/b is needed to attract short-covering.
Source: Saxo Bank
— Edited by John Acher
Ole Hansen is head of commodity strategy at Saxo Bank