Qatari diplomatic row drags oil futures lower

Oil futures traded lower on Monday (5 June), after several Arab nations led by Saudi Arabia cut diplomatic ties with Qatar accusing it of "adopting various terrorist and sectarian groups aimed at destabilising the region including the Muslim Brotherhood Group, Daesh (ISIS) and Al-Qaeda."

At 6:20pm BST, the Brent front month futures contract was down 0.76% or 38 cents to $49.57 per barrel, below the psychological $50-level. Concurrently, the West Texas Intermediate slipped 0.48% or 23 cents to $47.43 per barrel.

Apart from Saudi Arabia, Bahrain, United Arab Emirates (UAE), Libya, Yemen and Maldives have also cut diplomatic ties with Qatar, but the oil market is worried that discord between Saudi Arabia, UAE and Qatar could disrupt harmony among producers at Opec.

On 25 May, Opec agreed with 10 non-Opec producers to extend their joint oil production cut of 1.8 million per day (bpd) to March 2018, in a bid to support the oil market.

FXTM's vice president of market research Jameel Ahmad said: "It would be premature at this stage to suggest that this development could have an impact on the Opec deal, but a potential risk to monitor might be that Qatar will view this as being provided with less encouragement to comply with the agreed production quota."

"However, this is completely hypothetical however at this stage. In the instance that this did occur, or if other producers included in the Opec agreement diverted away from the production quota,then this would be seen as having negative connotations on the price of oil."