Image Credits : The Times of India
Oil prices experienced a decline of more than 2% on Monday, driven by significant price reductions from leading exporter Saudi Arabia and a surge in OPEC output. This downturn countered concerns over supply disruptions arising from increasing geopolitical tensions in the Middle East.
Brent crude witnessed a 2.2% slide, equivalent to $1.74, settling at $77.02 a barrel by 1024 GMT, while U.S. West Texas Intermediate crude futures dipped by 2.3%, or $1.73, reaching $72.08. This reversal follows a more than 2% climb in both contracts during the first week of 2024, fueled by heightened geopolitical risks in the Middle East, notably the attacks by Yemeni Houthis on ships in the Red Sea.
In response to heightened supply and competitive pressures from rival producers, Saudi Arabia took action on Sunday by implementing substantial cuts to the February official selling price (OSP) of its flagship Arab Light crude to Asia. Observations made by John Evans, an analyst at oil broker PVM, suggest that there are valid questions among oil watchers regarding whether the kingdom’s cut is directed not only at mitigating interference from non-OPEC supply but also from within its cartel membership.
A recent survey confirmed a rise in OPEC oil output in December, with increases in Iraq, Angola, and Nigeria offsetting ongoing cuts by Saudi Arabia and other members of the broader OPEC+ alliance. This surge precedes additional OPEC+ cuts scheduled for 2024 and Angola’s exit from OPEC, both expected to lower January output and market share.
While fundamentals, such as higher inventories and increased OPEC/non-OPEC production, point towards a bearish outlook for crude oil, geopolitical tensions in the Middle East are providing a counterbalance. U.S. Secretary of State Antony Blinken engaged in further talks with Arab leaders on Monday, aiming to diplomatically address the escalation of the conflict in Gaza and prevent its spread. The conflict has already sparked violence in the Israeli-occupied West Bank, Lebanon, Syria, and Iraq, accompanied by Houthi attacks on Red Sea shipping lanes.
Vandana Hari, the founder of oil market analysis provider Vanda Insights, highlighted that the tensions in the Red Sea serve as the sole counterweight to prevent crude prices from succumbing to bearish trends, despite acknowledging that this influence is relatively weak and intermittent.
Adding another layer of support to oil prices was the announcement of a force majeure by Libya’s National Oil Corporation on Sunday at its Sharara oilfield, which can produce up to 300,000 barrels per day.