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Commodities | Economy

Implication of Middle East Tensions on Oil

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5 Arab States Cut Ties with Qatar

  • The governments of Saudi Arabia, Bahrain, UAE, Yemen and Egypt announced that they were severing diplomatic ties with Qatar over allegations that the latter is pursuing policies that are destabilizing the region, including support for regional jihadist groups and for Iran. Qatar denies these allegations.
  • In Citi’s view, these developments appear more serious than the incident in 2014, when comments made by a Doha-based cleric sparked a row that resulted in a severing of diplomatic ties between March and November of that year.

 

This time, the sanctions against Qatar go well beyond the diplomatic, and include:

  • Closing of the land border between Saudi and Qatar;
  • Suspension of all flights between Qatar and its Gulf neighbours (Saudi, Bahrain, UAE, and Yemen);
  • Closing of these Gulf neighbours’ airspace to Qatar’s national carrier, Qatar Airways;
  • The expulsion of all Qatari nationals from their Gulf neighbours (effective in 14 days), and the withdrawal of their citizens from Qatar within the same time period.
  • It is not clear what is required of Qatar for these sanctions to be lifted, and it is therefore difficult to estimate how long they will remain in place. In 2014, it took eight months to resolve the row.

 

Implications on Oil

  • Oil prices finished lower on 5 June on concerns that rising tensions between OPEC (Organization of the Petroleum Exporting Countries) members could jeopardize the global production agreement. The West Texas Intermediate crude (WTI) fell 26 cents, or 0.6%, to settle at $47.40 a barrel. Brent crude slipped 48 cents, or 1%, to $49.47 a barrel. The settlements for both benchmark crudes were the lowest in just under a month.
  • In Citi’s view, the new sanctions against Qatar are unlikely to disrupt the recent agreement by OPEC and its allies to extend their oil-production cuts for another 9 months into January 2018.
  • While Qatar is an OPEC member, it is not a significant crude oil producer. Qatar contributed just 2% to OPEC’s April production. Citi analysts are still expecting WTI and Brent Crude to average $56 and $59 a barrel in 2017 as the impact of output cuts since January start to kick in.
  • Nevertheless, the situation remains fluid and Citi analysts are keeping a close watch on any escalating tensions. Citi analysts continue to believe that diversified portfolios can help investors navigate volatile markets.

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This communication is for general information only, is not intended as a recommendation or an offer or solicitation for the purchase or sale of any products or services and should not be relied upon as financial advice. The information herein
has not taken account of the objectives, financial situation or needs of any particular investor. Any person considering an investment should consider the suitability of the investment having regard to their objectives, financial situation and needs,
and should seek independent advice before making an investment decision. You should obtain and consider the relevant product terms and conditions and risk disclosure statement, and consider if it’s suitable for your objectives, financial situation or needs before making any investment decision. Investors are advised to obtain independent legal, financial and taxation advice prior to investing. Investments are not deposits, are not protected by the Deposit Protection Scheme in Hong Kong
and are subject to investment risk including the possible loss of the principal amount invested.

This communication does not constitute the distribution of any information in any jurisdiction in which it is unlawful to distribute such information to any person in such jurisdiction.

CHKL does not provide discretionary portfolio management services.

Singapore: This communication is distributed in Singapore by Citibank Singapore Limited (“CSL”) to selected Citigold/Citigold Private Clients. CSL provides no independent research or analysis of the substance or in preparation of this communication. Please contact your Citigold/Citigold Private Client Relationship Manager in CSL if you have any queries on or any matters arising from or in connection with this communication. Investment products are not insured under
the provisions of the Deposit Insurance and Policy Owners’ Protection Schemes Act of Singapore and are not eligible for deposit insurance coverage under the Deposit Insurance Scheme.

This communication is for general information only and should not be relied upon as financial advice. The information herein has no regard to the specific objectives, financial situation and particular needs of any specific person and is not intended to be an exhaustive discussion of the strategies or concepts mentioned herein or tax or legal advice. Any person interested in the strategies or concepts mentioned herein should consult their independent tax, legal, financial or other advisors,
as appropriate. This communication does not constitute the distribution of any information or the making of any offer or solicitation by anyone in any jurisdiction in which such distribution or offer is not authorized or to any person to whom
it is unlawful to distribute such information or make any offer or solicitation.

Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making
an investment decision. Interested investors should seek the advice of their financial adviser about the issues discussed herein as appropriate. Should investors choose not to seek such advice, they should carefully consider the risks associated
with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives and assess whether the investment product is suitable for
themselves. Although information in this document has been obtained from sources believed to be reliable, CSL does not guarantee its accuracy or completeness and accept no liability for any direct or consequential losses arising from Its use.

CSL does not provide discretionary portfolio management services.

UAE: This document is distributed in UAE by Citibank, N.A. UAE. Citibank N.A. UAE is licensed by UAE Securities and Commodities Authority (“SCA”) to undertake the financial activity as Promoter under license number 602003.

Citibank N.A. UAE is registered with Central Bank of UAE under license numbers BSD/504/83 for Al Wasl Branch Dubai, 13/184/2019 for Mall of the Emirates Branch Dubai, BSD/2819/9 for Sharjah Branch, and BSD/692/83 for Abu Dhabi Branch.

This is not an official statement of Citigroup Inc. and may not reflect all of your investments with or made through Citibank. For an accurate record of your accounts and transactions, please consult your official statement. Before making any investment, each investor must obtain the investment offering materials, which include a description of the risks, fees and expenses and the performance history, if any, which may be considered in connection with making an investment decision. Each investor should carefully consider the risks associated with the investment and make a determination based upon the investor’s own particular circumstances, that the investment is consistent with the investor’s investment objectives.
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United Kingdom: This document is distributed in the U.K. by Citibank UK Limited and in Jersey by Citibank N.A., Jersey Branch.

Citibank UK Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Our firm’s Financial Services Register number is 805574. Citibank UK Limited
is a company limited by shares registered in England and Wales with registered address at Citigroup Centre, Canada Square, Canary Wharf, London E14 5LB, Companies House Registration No. 11283101.

Citibank N.A., Jersey Branch is regulated by the Jersey Financial Services Commission. Citi International Personal Bank is registered in Jersey as a business name of Citibank N.A. The address of Citibank N.A., Jersey Branch is P.O. Box 104, 38 Esplanade, St Helier, Jersey JE4 8QB. Citibank N.A. is incorporated with limited liability in the USA. Head office: 399 Park Avenue, New York, NY 10043, USA.

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