HONG KONG (BLOOMBERG) - Oil prices rebounded on Monday (June 5) after a Saudi-led alliance cut diplomatic ties with Qatar and moved to close off access to the Gulf country, raising tensions in the world's biggest oil-producing region.
Futures rose as much as 1.6 per cent in New York, paring the biggest weekly loss in a month. Saudi Arabia, Bahrain, the United Arab Emirates and Egypt said on Monday they will suspend air and sea travel to and from Qatar, in an escalation of a crisis that started over its relationship with Iran. Prices slumped last week amid concern that rising US output will undercut supply curbs by Opec and its partners.
While the diplomatic spat hasn't affected shipments, it raises the prospect of supply disruptions from the Middle East, including Organisation of Petroleum Exporting Countries members Saudi Arabia, Iran and Qatar. The nations all use the Strait of Hormuz, via which the US Department of Energy estimates about 30 per cent of seaborne oil trade passes.
Crude had slipped below US$50 a barrel last week amid concern that an extension of Opec's cuts won't be enough to shrink global inventories as US output expands.
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"On the face of it, it could present a risk, but I don't think there is too much in the Qatar situation," said Mr Daniel Hynes, an analyst in Sydney at Australia & New Zealand Banking Group. "Geopolitical risks haven't really been that influential in recent times and I don't think that will change too much."
West Texas Intermediate for July delivery climbed as much as 76 cents to US$48.42 a barrel on the New York Mercantile Exchange and was at US$48.28 by 12:41pm in Hong Kong. Total volume traded was about 33 per cent above the 100-day average. Prices lost 70 cents to close at US$47.66 on Friday, capping a 4.3 per cent decline for the week.
Brent for August settlement added 66 cents to US$50.61 a barrel on the London-based ICE Futures Europe exchange. Prices fell 4.2 per cent last week. The global benchmark crude traded at a premium of US$2.10 to August WTI.
"The extension of Opec cuts has provided a fairly solid support level for Brent around US$50 a barrel, so anytime it dips below that, I think we'll see buying come back fairly quickly," said Mr Hynes.
Drillers targeting crude in the US added rigs for the 20th straight week to the highest level since April 2015, according to data on Friday from Baker Hughes. 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 stabilise the market over the long term as US shale fills the supply shortfall, according to the chief executive officer of Russia's Rosneft Oil.
Saudi Arabia raised pricing for July sales of all crude grades to Asia, the US and North-west Europe as it seeks to take advantage of increased demand after supplies extended output cuts.
Hedge funds trimmed bets on rising WTI prices to the lowest level since November.