While some analysts believe that Qatar being cut off will have minimal impact on the OPEC accord in the long run, rising USA production is also putting pressure on oil prices, nullifying any OPEC agreement.
"The report from the EIA [also] showed a "stunning" 1.4 million barrel-per-day drop in demand last week across all petroleum products", said Tom Kloza, global head of energy analysis at the Oil Price Information Service.
Here's a chart showing the level of USA crude oil inventories by days of supply, courtesy of the Commonwealth Bank, comparing where it now sits compared to the levels of recent years.
The WTI price was $47.68 per barrel on June 2, $1.90 below last week's price and $1.01 under a year ago, the report said. Investors expected a reduction of 3.137 million barrels, according to data from Bloomberg. But OPEC members Saudi Arabia, the United Arab Emirates, Egypt, and Bahrain all recently cut diplomatic and transport ties with Qatar, a small producer, after claiming the latter's policies support terrorism and extremism.
Bloomberg reported that USA crude imports from Saudi Arabia fell by 55 per cent for the week that ended June 2, but imports from Iraq hit levels not seen since 2012.
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.
Greg McKenna, chief market strategist at futures brokerage AxiTrader, said there was "a real chance" OPEC solidarity surrounding its production cuts may fracture.
US oil prices had their worst day since March, falling to their second lowest level of the year after USA data showed an unexpected increase in oil stockpiles.
At issue is the ongoing problem of oversupply - the market is still sitting on a huge stockpile of crude oil from the excess production of the past two years. Money managers increased their combined net long position in the three main Brent and WTI futures and options contracts by 20 million barrels in the week to May 30.
Nymex reformulated gasoline blendstock for July RBN7, +0.91% 0.8% to $1.5027 a gallon, while July diesel traded at $1.4278, 0.8% higher. Libya and Nigeria's combined January-May average output of 2.312 MMb/d is now 101,000 b/d higher than their October levels, the benchmark month against which the rest of OPEC members' cuts are determined. Importer nations have opted to take advantage of low oil prices to stock up for the future.