Oil prices fell more than 1% on Monday due to sharp price cuts by top exporter Saudi Arabia and an increase in OPEC production. This offset concerns about rising geopolitical tensions in the Middle East.
Brent crude fell 1.09%, or 86 cents, to $77.90 a barrel by 03:44 GMT, while West Texas Intermediate (WTI) crude futures fell 1.15%, or 85 cents, to $72.96 a barrel.
Saudi Aramco’s lowering of February OSPs strengthens the weak demand narrative. Rising supply and competition from rival producers prompted Saudi Arabia on Sunday to cut the February official selling price (OSP) of its flagship Arab Light crude to Asia to a 27-month low.
Given fundamentals such as higher inventories, higher OPEC/non-OPEC production, and lower-than-expected Saudi OSP, one would expect nothing short of a bearish trend in crude oil. However, this does not mean that geopolitical tensions in the Middle East are undeniably rising again.
Both contracts rose more than 2% in the first week of 2024 as investors returned from a holiday following attacks by Yemeni Houthis on ships in the Red Sea.
Blinken, who was in the Middle East this week, said the Gaza conflict could spread to the region unless there is a joint peace effort. Netanyahu insists on continuing the war until Hamas is eliminated.
Offsetting upward pressure on prices from geopolitical concerns, production from the Organization of the Petroleum Exporting Countries (OPEC) rose 70,000 barrels per day (bpd) in December to 27.88 million barrels per day, according to a survey.
Red Sea tensions, although relatively weak and intermittent, are a countervailing factor to the downward trend in crude oil prices on expectations of softening global demand and increasing inventories.
Baker Hughes said in its weekly report that oil rigs in the US increased by one last week to 501. JPMorgan projects 26 oil rigs will be added this year, most in the Permian in the first half of the year.
