oil rig
Oil benchmarks saw another bout of sustained losses on oversupply fears. Reuters

Oil benchmarks saw another bout of sustained losses on Thursday (8 June), after a surprising overnight surge in US crude inventories added to the downside price drag of the ongoing Qatari diplomatic row.

At 1:59pm BST, the Brent front month futures contract for August delivery was down another 0.75% or 36 cents at $47.70 per barrel, with the global proxy benchmark having breached the psychological $50-level on Monday.

Concurrently, the West Texas Intermediate (WTI) was down 0.94% or 43 cents to $45.29 per barrel, after US Energy Information Administration said the country's stockpiles rose by 3.3m barrels last week, against market estimates for a 3.5m-barrel drop.

US data escalated bearish sentiment in the market in the wake of the Qatari diplomatic row.

On Monday, 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."

Saudi Arabia, Bahrain and United Arab Emirates (UAE) also closed their air and maritime space to Qatar, while Riyadh severed the only available land route to Doha. Discord between Saudi Arabia, UAE and Qatar has the potential of disrupting 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. Doha has refrained from reciprocal measures and called on Riyadh to participate in dialogue.

James Trescothick, senior global strategist, easyMarkets comments, said there is the potential that Opec's agreement to limit current oil production could collapse. "If that happens oil prices could potentially fall. However, Qatar is one of the smallest oil producers in Opec, with estimated proven reserves of 25bn barrels which is dwarfed by Saudi Arabia's 266bn barrels.

"For Qatar to really have an impact on the current agreement, it would have to be backed by other smaller members like Algeria and Nigeria. And even if Qatar was to increase production, they still face the impossible mission of getting production out with the border restrictions currently in place."

Trescothick believes the main danger to the region and indeed to oil prices is that increased tension could lead Qatar to reach out even further to Iran for support which would no doubt sour diplomatic relations further.

FXTM research analyst Lukman Otunuga said WTI crude is heavily bearish on the daily charts. "A breakdown below $45 should open a path lower towards $44. Furthermore, with the oversupply woes still a dominant theme in the oil markets and Opec's efforts to stabilise the markets disrupted by US Shale production, WTI Crude may receive further punishment."