Oil prices slid hard on Wednesday on double-pronged concerns that the rift between Saudi Arabia and the other Gulf nations with Qatar, which began Monday, will wind up boosting output, and unexpectedly high U.S. inventories of crude and gasoline.
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U.S. crude futures tumbled 5 percent, or $2.47 a barrel, to $45.72 a barrel, the lowest settlement for U.S. crude since May 4. U.S. benchmark futures on oil have slid more than 11 percent in 10 days of trading.
Market players remain concerned about Saudi Arabia and the United Arab Emirates, both members of the Organization of the Petroleum Exporting Countries, cutting diplomatic and transport ties with Qatar, also an OPEC member that had agreed to reduce production by 30,000 barrels a day as part of the OPEC agreement to reduce output. Saudi Arabia even closed its air space to Qatari air traffic.
The concern is that that spat will lead the OPEC members to disregard their production-cutting agreement. The organization members and other producers, including Russia, had pledged to cut output by about 1.8 million barrels per day in order to shore up oil prices.
U.S. crude stocks had increased by 3.3 million barrels to 513 million barrels, says the U.S. Energy Information Administration, leading analysts to suspect that efforts to curb a global glut in oil have not worked. Forecasters had predicted a drop of 3.5 million barrels. Gasoline inventories also unexpectedly rose, imports increased, and exports dropped, the EIA data showed.
“These figures spell a setback to the joint effort by OPEC and some non-OPEC countries to curb their output," commented Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London, to Reuters.
Brent crude prices fell by a steep 4 percent to settle at $48.06 a barrel. Official settlement prices were delayed due to a technical issue, according to a Nymex spokesperson. U.S. gasoline futures fell 4 percent to $1.49 a gallon, the lowest point since May 10, again due to rising inventories.
On Monday, Bahrain, Egypt, Saudi Arabia and the United Arab Emirates cut ties with Qatar over its support for Islamist groups. Since Tuesday morning, all flights from Qatar to North Africa – flights that would have usually gone through Saudi Arabia and Egypt – now have to take a northern route – over Iran and Turkey, adding on fuel costs. A rare voice of support for Qatar has come from Turkey, with officials offering to provide fast-track troops, and food and water supplies to the suddenly isolated Gulf country. Doha has intimated that it would like mediation efforts – for instance, by Kuwait – to ease the regional tensions.