Saudi pricing cuts offset Middle East concerns as oil prices decline.
Saudi pricing cuts offset Middle East concerns as oil prices decline.
By Natalie Grover at 7:44 p.m. on January 8, 2024
January 8, London (Reuters) - Sharp price cuts by Saudi Arabia, the world's largest oil exporter, and an increase in OPEC production countered supply worries brought on by the rising geopolitical unrest in the Middle East, causing oil prices to plummet by more than 2% on Monday.
By 12:37 GMT, U.S. West Texas Intermediate crude futures had down 2.7%, or $2.01, to $71.8, while Brent crude had dropped 2.5%, or $1.99, to $76.77 a barrel.
In the first week of 2024, both contracts increased by more than 2% due to growing geopolitical risk in the Middle East following attacks on ships in the Red Sea by the Yemeni Houthis.
Saudi Arabia lowered its flagship Arab Light crude's February official selling price (OSP) to Asia to its lowest level in 27 months on Sunday due to increased supply and competition from other producers.
"Oil watchers are rightly questioning that the kingdom's cut is not only aimed at quelling interference from non-OPEC supply but from its very own cartel membership," said John Evans, an oil broker with PVM.According to a poll conducted by Reuters on Friday, OPEC's oil output increased in December due to increases in Nigeria, Iraq, and Angola, which countered ongoing reductions by Saudi Arabia and other OPEC+ members.
The increase occurred ahead of Angola's departure from OPEC and additional OPEC+ cuts in 2024, which are expected to reduce January output and market share.
"If we were just to focus on the fundamentals, including higher inventories, higher OPEC/non-OPEC production and a lower than expected Saudi OSP, it would be impossible to be anything other than bearish on crude oil," Tony Sycamore, an analyst with IG, said."However, that doesn't take into account the fact that geopolitical tensions in the Middle East are undeniably rising again, which will mean limited downside."
On Monday, U.S. Secretary of State Antony Blinken continued his diplomatic efforts to prevent the Gaza War from getting worse by meeting with leaders of the Arab world.
Houthi attacks on Red Sea trade lines have resulted from the conflict, which has already caused carnage in Lebanon, Syria, Iraq, and the Israeli-occupied West Bank.
According to Vandana Hari, the founder of oil market analysis company Vanda Insights, "the only counterweight, albeit a relatively weak and intermittent one, to crude prices succumbing to bearishness over expectations of softening global demand and rising inventories" is the Red Sea conflicts.
At its Sharara oilfield, which has a daily production capacity of up to 300,000 barrels, Libya's National Oil Corporation on Sunday declared a force majeure, which somewhat mitigated the decline in oil prices.
Reports from Mohi Narayan in New Delhi, Florence Tan in Singapore, and Natalie Grover in London David Goodman handled the editing.
Source reuters.com
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