Oil slides as rising US crude, gasoline inventories surprise

Geopolitical tensions and hostilities between major oil producers can have two opposite effects on the oil market depending on whether the global oil market is tight or is in surplus

While OPEC agreed to stabilize oil prices by cutting production by 1.2 million barrels a day late a year ago, non-OPEC countries like the U.S. have quickly increased their production to compete for market share, leading to global oil prices fluctuating around the $50 per barrel level. A Wall Street Journal survey estimates that U.S. crude oil inventories would have fallen by 3.5 MMbbls between May 26, 2017, and June 2, 2017.

1990-After Iraq invaded Kuwait on August 2, the combined production of both countries-4.3 million barrels a day-was halted, according to the Energy Information Administration. For Organization of Petroleum Exporting Countries (Opec), it's likely to remain business as usual. Analysts think that, the risk would be Qatar walking away from the agreement with OPEC nations to curb its oil supply. Brent Crude was down 4.7% to $51.44 per barrel and the West Texas Intermediate was down 4.8% to $48.90.

Refinery crude runs fell by 283,000 barrels per day, EIA data showed, to 17.2 million barrels per day, from the previous week's record 17.5 million bpd rate.

Currently, oil prices gained support from growing tensions in the Middle East and signs of decline in U.S. inventory.

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

On its part, OPEC has surprised each and every one with their high level of compliance with regards to the oil production cuts.

Oil slides as rising US crude, gasoline inventories surprise

On May 25, OPEC and 10 non-OPEC partners including Russian Federation chose to roll over a 1.8 million barrels per day production cut agreement into March 2018.

As per an article published on MarketWatch, one analyst said that "increased tensions in the Middle East props up oil prices with a fear bid, but the dynamic of this Qatar issue is different because it is largely between Saudi Arabia and Iran".

But economics trumps nearly all, and the two's interests are certainly aligned in trying to reverse the damage done by Saudi Arabia's failed bid to squeeze USA shale drillers out of the market and the corresponding glut of supply forcing prices to painfully low levels - painful at least for oil producers.

United States crude futures fell 4.3%, or $2.04 a barrel, to $46.16 a barrel, as of 3.18pm GMT.

However, yesterday, Saudi Arabia and its allies announced that they were severing all ties with Qatar - an OPEC member.

Nymex reformulated gasoline blendstock-the benchmark gasoline contract-rose 1.40% to $1.53 a gallon. The figures added fuel to growing concerns OPEC's production cuts wouldn't be enough to offset growing US output thanks to contributions from American shale players. Oil prices had earlier fallen by more than 50 per cent in less than two years, from levels of over $120 a barrel.

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