Crude futures eased on Monday, erasing earlier gains that were spurred by a political rift in the Middle East, before investors refocused on the supply-glut.
Continue Reading Below
Oil rose in early trade after Saudi Arabia and three other countries severed diplomatic ties with Qatar, but investors remain pessimistic about the oversupplied crude market and the gains petered out by late morning in London.
U.S. crude futures were recently down 46 cents, or 0.97%, at $47.20 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 52 cents, or 1.04%, to $49.43 a barrel on ICE Futures Europe. Oil fell by more than 4% last week, the largest weekly decline since early May, after investors were disappointed that the Organization of the Petroleum Exporting Countries didn't deepen its production cuts at their meeting on May. 25.
Saudi Arabia, Egypt, Bahrain, and the United Arab Emirates all cut ties with Qatar on Monday, accusing it of meddling in their internal affairs and backing terrorism.
Oil traders are sensitive to Middle East tensions because they worry about supply disruptions, although Qatar itself is a smaller producer than its neighbors.
"You've had a knee-jerk reaction to the announcement and then prices came right back down," said Harry Tchilinguirian, oil strategist at BNP Paribas, adding that the market quickly assessed that the tensions were unlikely to have an impact on oil supply.
Continue Reading Below
Market participants will be watching to see if Qatar, a member of OPEC, decides to disrupt the production cutback deal. Late last year, OPEC agreed to cut production by 1.2 million barrels a day to reduce a supply glut. Analysts noted that existing tensions in the group between Saudi Arabia and Iran had not prevented them from being able to come to an agreement, however. Meanwhile, investors are impatient to see the cuts help diminish global stocks.
"It's not clear what impact the spat will have on oil supplies," Citi Futures analyst Tim Evans wrote in a research note Monday. "As with the larger regional tensions between Saudi Arabia and Iran, this may not mean any change in the level of cooperation regarding oil production policy where 'business is business' tends to be the rule."
Sentiment deteriorated further last week after data from oil-field services company Baker Hughes Inc. on Friday showed U.S. oil drillers adding 11 more active rigs in the week ended June 2. That marked a 20th consecutive weekly rise.
U.S. crude production has averaged more than 9.3 million barrels a day for four straight weeks. The government now expects production to reach nearly 10 million barrels a day next year.
Gasoline futures fell 3.04 cents, or 1.93%, to $1.5467 a gallon. Diesel futures fell 2.36 cents, or 1.59%, to $1.4612 a gallon.
Alison Sider contributed to this article.
Write to Sarah McFarlane at firstname.lastname@example.org and Jenny W. Hsu at email@example.com
(END) Dow Jones Newswires
June 05, 2017 11:15 ET (15:15 GMT)