Why Would Oil Fall When Middle Eastern Countries Sever Ties With Qatar?
Vantage | Jun 06, 2017 12:40AM ET
The price of oil finished lower to start the week as Saudi Arabia led other Middle Eastern countries in severing diplomatic and economic ties with Qatar after accusing them of backing terrorism.
But wait a minute. Wouldn’t an increase in political tensions between competing OPEC nations increase production uncertainty and therefore raise the price of oil? Generally this would be the case. But the dynamic of this particular Middle Eastern spat isn’t general at all.
To oil markets, Qatar is a nobody. As far as markets are concerned, this is a proxy issue between Saudi Arabia and Iran. Two countries where the likelihood of military action (and subsequent production outages) is low. However, with OPEC production limits to artificially lift the price of oil failing miserably due to production from the US and Africa, a further breakdown in trust within OPEC could see caps abandoned once more.
As it stands right now, Qatar have little to no reason in keeping their production quotas to benefit the entire OPEC block when the block has essentially abandoned them. Even if they do, nobody trusts anything to do with OPEC anymore so the price of Oil continues on it’s slippery slide off daily resistance, back down toward the $25.00 lows.
Oil Daily:
We’ve been watching this Oil resistance level on the blog for a while, and recent fundamentals have backed up the technical picture of a higher time frame resistance level having held to cap price. Go through this Ignoring the Emotion of Fear to Short Oil post, as well as the linked articles to back-follow the technical trading narrative that we have been immersed in.
It’s still all about price being below the higher time frame resistance level so keep an eye on the @VantageFX Twitter account as we zoom into the intraday charts to find shorting opportunities with the best risk:reward ratios heading forward.
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