Oil down despite Middle East Woes

Oil prices further approached year-to-date lows on Friday on data showing an exacerbated supply glut and worries that the conflict between Qatar and some of its neighbours could scuttle OPEC unity on production cuts.

Brent futures for August delivery were at USD 47.75 per barrel at 1.35 pm in London, down USD 0.11 since Thursday’s close and about 4.5% this week.

It marked one of the rare occasions in recent history when significant political turmoil in the Middle East has failed to send oil prices up. Though Qatar, an OPEC member and a major LNG exporter, found itself under partial blockade by the UAE, Saudi Arabia and Egypt, oil prices went down on concerns that this could hurt the OPEC production cut deal, which was recently extended into the first quarter of 2018.

The crisis sent up LNG prices in Britain, which spiked by about 5% on Thursday after two Qatari tankers were forced to change course in order to avoid the Egypt-controlled Suez Canal, Reuters reported.

Also on Thursday, the Abu Dhabi Petroleum Ports Authority slapped a ban on all vessels destined to or arriving from Qatar, as early efforts to mediate the standoff appeared to have faltered.

Still, energy markets seemed more concerned with a surprise announcement by the EIA on Wednesday, which showed that US commercial crude stocks went up by about 3.3 million barrels last week, despite analysts’ expectations and an earlier report by the American Petroleum Institute, which suggested a significant draw.

“The inventory data was surprising to everyone, both in crude and in refined products,” Rob Haworth, a strategist at U.S. Bank Wealth Management, told Reuters.

Also weighing down oil prices was Royal Dutch Shell’s Wednesday announcement that it had had restarted exports from a key Nigerian pipeline. This is expected to increase global supply by some 250,000 bopd this month, cancelling out about one-fifth of OPEC’s cuts.

Analysts also fear upcoming output increases from Libya, which like Nigeria is exempt from the cuts due to recent violence that has decimated its production.

“The challenge OPEC is facing is bigger than anyone thought a few weeks ago,” Tamas Varga, an expert at the London brokerage PVM Oil Associates, told Reuters.