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The biggest oil price news today (Monday, June 5) focuses on Qatar's sudden diplomatic isolation in the Middle East. And while that's sending oil prices 2% lower today, we still see oil prices rebounding before the end of the year.
Early this morning, Saudi Arabia, Egypt, Bahrain, Yemen, and the United Arab Emirates each cut diplomatic and commercial ties with Qatar, a member of the Organization of the Petroleum Exporting Countries (OPEC). These five countries acted to cut off Qatar over its support for extremist organizations like the Muslim Brotherhood and for Qatar's alleged ties to Iran.
Here's why Qatar's sudden isolation is pushing oil prices down and why we are still bullish on oil prices in 2017…
Don't Sweat the Recent Oil Price News
The decision to cut ties with Qatar by five of its Middle Eastern neighbors was sudden and unexpected. Because the region is so important for oil prices – Saudi Arabia controls about 20% of the entire world's oil supply – the instability startled oil futures traders.
But as long as the diplomatic posturing doesn't devolve into an armed conflict between the countries, oil prices should eventually recover for two reasons.
First, Money Morning Global Energy Strategist Dr. Kent Moors says overreacting traders and computer algorithms have made this one of the most volatile oil markets since the oil price crash ending in early 2016.
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Moors says hedge fund managers and technical traders have fixated more on oil's 200-day moving average than on the actual market fundamentals of supply and demand.
"While their views are influenced by supply and demand," says Moors, "they often place just as great a level of importance on graphical doodlings like these moving averages, which have no relationship to the market fundamentals which ought to be shaping the price of oil."