Oil Prices Drop Over 2% as Saudi Arabia Cuts Prices and OPEC Output Rises
In a move that offset concerns about supply due to escalating geopolitical tension in the Middle East, oil prices fell by more than 2% on Monday. Top exporter Saudi Arabia implemented sharp price cuts, while OPEC output increased.
Brent crude experienced a 2.2% slide, dropping $1.74 to $77.02 per barrel by 1024 GMT. U.S. West Texas Intermediate crude futures also shed 2.3%, losing $1.73 to reach $72.08.
Although both contracts had climbed over 2% in the first week of 2024 due to rising geopolitical risk in the Middle East, the recent price cuts and increased output caused a decline. Yemeni Houthis’ attacks on ships in the Red Sea heightened concerns about supply.
Saudi Arabia’s decision to cut the February official selling price (OSP) of its flagship Arab Light crude to Asia to the lowest level in 27 months was driven by rising supply and competition with rival producers. This move has led experts to question whether the cut is aimed at quelling interference from non-OPEC supply and its own cartel membership.
A Reuters survey conducted on Friday revealed that OPEC oil output rose in December. Increases in Iraq, Angola, and Nigeria offset the continuing cuts made by Saudi Arabia and other members of the wider OPEC+ alliance.
The boost in output came ahead of further OPEC+ cuts in 2024 and Angola’s exit from OPEC, which are expected to lower January output and market share.
Despite the bearish fundamentals, including higher inventories, higher OPEC/non-OPEC production, and a lower-than-expected Saudi OSP, geopolitical tensions in the Middle East are rising again. This factor may limit the downside of crude oil prices.
U.S. Secretary of State Antony Blinken engaged in more talks with Arab leaders on Monday to prevent the war in Gaza from spreading further. The conflict has already sparked violence in the West Bank, Lebanon, Syria, and Iraq, and has led to Houthi attacks on Red Sea shipping lanes.
Geopolitical tensions in the Middle East serve as a counterweight to bearish expectations of softening global demand and rising inventories. However, these tensions are relatively weak and intermittent, according to Vandana Hari, founder of oil market analysis provider Vanda Insights.
Another factor supporting prices is the force majeure declared by Libya’s National Oil Corporation on Sunday at its Sharara oilfield, which has the capacity to produce up to 300,000 barrels per day.
Overall, while the recent price cuts and increased OPEC output have caused a decline in oil prices, geopolitical tensions and supply disruptions continue to provide some support.
