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Crude Oil Slides After ME Cuts QA Ties

Crude Oil Slides After ME Cuts QA Ties

Surplus oil in many parts of the world and developments with Qatar had traders nervous, even after Kuwait Oil Minister Essam al-Marzouq said Qatar remained committed to restricting crude output under an agreement between Opec and several non-Opec suppliers.

World fuel production and consumption is roughly in balance, at nearly 98 million bpd, although inventories remain bloated, the U.S. Energy Information Administration (EIA) said on Tuesday.

"We believe that U.S. inventories will continue falling this summer, allowing Opec to point to lower stocks as a positive measure of success", Sandy Fielden, director of oil and products research at Morningstar, said in a note. USA crude futures fell sharply, dropping more than 4 percent to $46.12 a barrel as of 11:04 a.m. ET.

Brent crude prices were at $48.20 per barrel, down 3.8 percent, or $1.92 a barrel. That confounded analysts' estimates for a 3.5 million-barrel decline.

Brent crude oil, the Global benchmark, rose more than one percent at one point, recouping some of last week's four percent loses, before paring gains.

OPEC's agreement on continued production cut is aimed to stabilise oil supply in long run.

The US West Texas Intermediate for July delivery lost ##IMG-CONTENT##.26 to settle at.40 a barrel on the New York Mercantile Exchange on Monday.

Russian Energy Minister Alexander Novak, a key negotiator in the OPEC deal, said in an interview with Bloomberg Television in St. Petersburg that without last month's extension of the accord, worldwide crude prices would have plunged.

The agency also bumped up its projections for demand, so overall analysts forecast a more balanced market next year, despite the upward revision in American output.

"The market just has to be patient", said Bjarne Schieldrop, chief commodities analyst at SEB Markets, adding that a gradual reduction in inventories would support prices without the kind of price spike that would drive US shale production higher. The news at first benefited Brent crude prices as much as by 1.6%, but gradually the market digested another impact of the dispute.

Starting with the first question, Shale 2.0 means that OPEC is now up against a very competitive United States industry where producers can survive for longer despite low oil prices, which can even be below the threshold needed to balance and sustain many OPEC members' fiscal budgets.

In St. Petersburg's global economic conference last week, the leading United States oil historian Daniel Yergin stated that the shale oil industry now has moved into what is defined as "Shale 2.0".

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