Crude futures were mixed on Monday following early gains that were spurred by a political rift in the Middle East.
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.
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Brent crude, the global oil benchmark, fell 0.20% to $49.84 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were flat at around $47.92 a barrel. Oil fell by more than 4% last week, the largest weekly decline since early May.
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.
Last month, Qatar's state-controlled news agency posted comments purportedly from its emir that praised Iran and called Hamas the legitimate representative of the Palestinian people. Qatar said its state news agency had been hacked, but Saudi Arabia, the U.A.E., Bahrain and Egypt nevertheless blocked the websites of several Qatari news outlets.
Oil traders are sensitive to Middle East tensions because they worry about supply disruptions, although Qatar itself is a smaller producer than its neighbors.
"Given the persisting bearish sentiment in the oil market the unprecedented move might not have a long-lasting impact on oil prices but it is worth keeping in mind that Persian Gulf countries produce about 21.5 million barrels per day," said Tamas Varga at brokerage PVM.
Market participants will be watching to see if Qatar, a member of the Organization of the Petroleum Exporting Countries, 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. At first, the move lifted global prices, but much of those gains have been erased due to rising output from the U.S. and Libya. The program of cuts has been extended to next March.
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.
Meanwhile, the head of Russia's largest oil producer, Rosneft, expressed doubt that the OPEC cuts would lift oil prices in the long run. He said producers who weren't included in the reduction pact, such as Nigeria and Libya, have been increasing output.
"A number of large-scale oil producers that do not take part in these agreements use such conditions to strengthen their market positions, and that leads rather to new imbalance than to the sustainable development," said Rosneft Chief Executive Igor Sechin, at an energy conference in Russia over the weekend.
Nymex reformulated gasoline blendstock--the benchmark gasoline contract--rose 0.1% to $1.58 a gallon. ICE gasoil changed hands at $441.25 a metric ton, up $3.00 from the previous settlement.
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(END) Dow Jones Newswires
June 05, 2017 07:03 ET (11:03 GMT)