Oil prices slide over worries Middle East rift will undermine output cuts

Oil prices slide over worries Middle East rift will undermine output cuts

Oil prices slide over worries Middle East rift will undermine output cuts

Oil prices dipped on Wednesday, with Brent crude futures around $50 per barrel, as global fuel markets remained oversupplied, although rising tension in the Middle East and falling USA inventories lent some support. For the same period, an S&P Global Platts survey of analysts had consensus estimates for a decrease of 3.5 million barrels in crude inventories, an increase of 250,000 barrels in gasoline inventories, and no change in distillate stockpiles.

World fuel production and consumption is roughly in supply and demand balance, at nearly 98 million bpd, although inventories remain somewhat bloated, according to the US Energy Information Administration (EIA). Market watchers were actually hoping that OPEC would deepen the cuts or agree on an outright production freeze in order to force a balance on the demand-supply dynamics of oil.

"While we would not want to read too much into this in terms of looming trouble for Opec, the fact that Qatar's stance towards Iran is a key element in this issue does make for a potentially more complicated setup at future meetings should the issue not have been resolved in due time", JBC Energy analysts said in a note. Libya and Nigeria's combined January-May average output of 2.312 MMb/d is now 101,000 b/d higher than their October levels, the benchmark month against which the rest of OPEC members' cuts are determined.

In the near-term, however, the market was supported by escalating tensions in the Middle East and by signs of a gradual drawdown of bloated US fuel inventories.

CNN reported late last month, however, that the entire spat with Qatar was sparked by a fake news report by Russian hackers.

Last year OPEC announced a momentous deal between its member nations and some non-OPEC producers to reduce their oil output. US crude was down 1% to $47.73 per barrel.

The risk-off reaction in the oil market sent West Texas Intermediate crude prices, the USA benchmark, plunging to just above $46 per barrel, its lowest level since May.

WTI was trading at $48.10 at 2:30pm EST, up 1.48 percent on the day-with Brent trading at $50.05 per barrel, or 1.17 percent up since open.

Focus is likely to shift to U.S. inventories ahead of government data Wednesday.

The split between Qatar and four other Gulf countries could make OPEC's goal of rebalancing the crude market even more hard.

Gold hit a six-week high of $1,282 an ounce, with traders citing the U.S.jobs report and reduced prospects of aggressive Fed rate increases. Second, while it reduced supply today, Opec also committed itself to growing production in future years to keep prices below the USA shale breakeven level.

Capital Economics analysts say the acceleration in USA oil digging activities will soon peter out unless oil prices rise significantly.

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