Unusual fluctuations witnessed in oil prices

Manama : Oil prices experienced unusual fluctuations after Arab nations including Bahrain severed diplomatic ties with Qatar yesterday. The diplomatic crisis in the region has caused huge fluctuations in the oil market. 

Although the oil prices rose in the morning, it took a tumble later in the day. Not long after Saudi Arabia, along with the United Arab Emirates, Egypt, Yemen and Bahrain cut ties with Qatar, the Brent Crude prices rose 1.24 per cent in early trading to $50.57 a barrel and the US benchmark, West Texas Intermediate went up 0.9 per cent to $48.08. However, later in the day Oil prices fell more than one per cent. 

Although Qatar’s oil production capacity is OPEC’s smallest, diplomatic rift in the region could potentially undermine the supply deal signed by member nations to reduce oil production. OPEC as well as non-OPEC members had agreed to cut its oil production by 1.8 million barrels a day to stabilise the oil prices. 

“I think it’s still going to be a bit of a debate on the true impact it can have on the oil market. In terms of oil flows it doesn’t change very much but there is a wider geopolitical impact one needs to consider,” said Olivier Jakob, an Oil analyst said in a statement. 

Business to be hit

Bahraini companies with Qatari customers will be hit by the Arab countries’ action, according to experts. A company, whose major client is Qatar Airways said that the company is expecting losses. 

“Qatar Airways is one of our second most valuable client after Gulf Air, when they stop coming we will be affected. They comprise a considerable amount of our monthly income so it is a big loss for us,” a source from the company told DT News. Bahrainis which has investments in Qatar will also be affected by the action.

Near term impact 

According to City Research, the research division of  City Group Global  Markets, the near term impact of the diplomatic crisis is containable by Qatar, which has substantial resources it can employ but the economic and financial impact of these sanctions in the longer run are far reaching.  “This would argue for a more prolonged crisis though we do not have a strong view at this point regarding duration,” it said.