Oil prices experienced a decline of over 2% on Monday, primarily driven by significant price reductions from leading exporter Saudi Arabia and an increase in OPEC production.
These factors countered the concerns arising from escalating geopolitical tensions in the Middle East.
Brent crude witnessed a 2.5% drop, equivalent to $1.99, settling at $76.77 per barrel by 1237 GMT.
Simultaneously, U.S. West Texas Intermediate crude futures recorded a 2.7% decrease, amounting to $2.01, reaching $71.8.
Despite both contracts experiencing over 2% gains in the initial week of 2024 due to heightened geopolitical risks in the Middle East, particularly from attacks by Yemeni Houthis on ships in the Red Sea, the recent dip was influenced by increased supply and competition.
Saudi Arabia responded by lowering the February official selling price (OSP) of its flagship Arab Light crude to Asia, marking the lowest level in 27 months.
OPEC Sees Rise in Oil Output Despite Saudi Cuts
In December, OPEC experienced an increase in oil output attributed to the heightened production levels in Iraq, Angola, and Nigeria, compensating for the ongoing reductions by Saudi Arabia and other members within the broader OPEC+ alliance.
This upturn preceded additional cuts by OPEC+ in 2024 and Angola’s withdrawal from OPEC, both of which are anticipated to contribute to a decline in January output and market share.
Analyst Tony Sycamore from IG emphasized the challenging outlook for crude oil, considering factors such as elevated inventories, increased OPEC/non-OPEC production, and a Saudi Official Selling Price (OSP) lower than expected.
Nevertheless, this perspective does not consider the escalating geopolitical tensions in the Middle East, which undeniably indicate a resurgence, thereby limiting the potential downside.
U.S. Secretary of State Antony Blinken engaged in further discussions with Arab leaders on Monday as part of diplomatic efforts to prevent the Gaza conflict from expanding.
Red Sea Tensions Act as Limited Counterbalance to Potential Crude Price Decline
Vandana Hari, the founder of Vanda Insights, an oil market analysis provider, highlighted that the Red Sea tensions serve as a modest yet intermittent counterbalance to crude prices potentially succumbing to bearish trends fueled by expectations of weakened global demand and rising inventories.
Furthermore, the decline in oil prices found some relief due to a force majeure declared by Libya’s National Oil Corporation on Sunday at its Sharara oilfield, with a production capacity of up to 300,000 barrels per day.
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