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Oil Markets On Edge As Arab States Cut Ties With Qatar

Oil prices were off to a jumpy start in volatile trade on Monday after Saudi Arabia and five other Arab nations severed diplomatic ties with Qatar, accusing it of sponsoring terrorism and destabilizing the region.

As of 8:15am EDT on Monday, WTI Crude was down 0.73 percent at US$47.31, while Brent Crude was trading down 0.82 percent at US$49.54. After opening at US$49.87, Brent touched briefly above the $50 mark at US$50.74, before dropping to below US$50 again.

Saudi Arabia, Bahrain, the United Arab Emirates (UAE), Egypt, Yemen, and Libya have now cut diplomatic ties with Qatar.

Saudi Arabia’s Ministry of Foreign Affairs said in a statement that it had made the decision to sever ties with Qatar “as a result of grave violations committed by the authorities in Doha”. Related: OPEC Cuts Send Russia’s Oil Heartland Into Decline

Saudi Arabia accused Qatar of “adopting various terrorist and sectarian groups aimed at destabilizing the region including the Muslim Brotherhood Group, Daesh (ISIS) and Al-Qaeda, promoting the ethics and plans of these groups through its media permanently, supporting the activities of Iranian-backed terrorist groups in the governorate of Qatif of the Kingdom of Saudi Arabia and the Kingdom of Bahrain, financing, adopting and sheltering extremists who seek to undermine the stability and unity of the homeland at home and abroad.”

Iran, for its part, pointed the finger at U.S. President Donald Trump and his recent visit to Saudi Arabia.

“What is happening is the preliminary result of the sword dance,” Hamid Aboutalebi, deputy chief of staff of Iranian President Hassan Rouhani, tweeted, as quoted by Reuters.

The Arab countries that cut ties with Qatar closed their airspace for Qatar Airways. UAE’s Etihad Airways and Emirates said they would be suspending all flights to Doha beginning on Tuesday, and until further notice.

While flights would be severely affected, analysts do not expect Qatar’s LNG and oil shipping to be directly impacted by the rift in the Persian Gulf relations. Qatar is the world’s no.1 LNG exporter. Related: The OPEC Extension Is Already Under Threat

According to experts and sources who talked to Bloomberg, despite the fact that some of the Arab states would close their waters and ports for Qatar-originated shipments, Qatar’s main LNG customer region, Asia, probably would not be disrupted.

“In principle Qatar should still be able to export via its own waters, Iran and Oman,” Robin Mills, head of Dubai-based consultant Qamar Energy, told Bloomberg.

Qatar’s LNG supplies to the UAE will probably stop now, but there are plenty of LNG cargoes out there for the UAE to pick, Mills noted.

According to a Platts analysis, market and trading sources said on Monday that the rift in the Persian Gulf is not expected to affect directly oil and LNG trade from Qatar. Refiners often buy VLCCs to be co-loaded with crude oil from various Middle East countries, and shipping sources told Platts that they had not heard there were any restrictions imposed on VLCCs carrying Qatari crude oil cargoes from calling on Saudi or UAE crude loading ports.

In addition, Egypt has not explicitly stated that it would bar Qatar cargoes or Qatar-flag cargoes passing through the Suez Canal, and currently there are no indications it intends to do so, according to Platts.

Qatar’s three main crude grades are being shipped almost exclusively to Asia, Platts noted.

Although it’s not immediately clear how the Arab states rift would affect OPEC’s current production cut deal, it may be reasonable to expect that the diplomatic clash could jeopardize the very high compliance to the deal that the cartel has been boasting.

By Tsvetana Paraskova for Oilprice.com

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  • EH on June 05 2017 said:
    Folks,editors included,, don't believe a word . This is just Corporate governance, shareholders and bean counters putting there chess pieces in place to manipulate profits,, they are willing too go to war, lose lives on both sides and use American tax funded military to increase there profits! By propaganda this allows another cut in the flow of Oil, just like the Bush team did in Iraq. I don't know about you,, but everyone in my social economic reality suffered thru that oil boom, some are still suffering lost love ones. And too put iceing on the cake,, our GREAT grand children will inherit the cost of that Iraq envasion,,,for Corporate profits,, makes for a very hard pillow at night,, for me that is.
  • EH on June 05 2017 said:
    I want to bring attention,, a reminder if you will, about a post I made back a few years ago regarding the debate of XL pipeline and Dakota access; I had relayed from the only credible supreme source in the universe that it had nothing to do with energy independence for our Country,, it was a cloaking pipeline to Export OUR NATURAL RESOURCES onto barges to ship around the globe, deplete our abundance, drive price per barrel up and THEN import at an added cost OUR OWN OIL,,! It is NOW BEING EXPORTED as I write this,,, soon, very soon, you'll see a shortage, news of storage over estimated. Then the fat cat liars will be importing OUR OWN CRUDE to sell us as foreign OIL.

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