Oil prices posted around a 1% loss on Monday following Saudi Arabia’s significant price reductions and higher production from the Organization of the Petroleum Exporting Countries (OPEC), which offset concerns over elevated conflict in the Middle East.
Brent crude oil futures fell 1.22% to $77.80 per barrel, having declined 1.14% to $72.97 per barrel earlier. The US West Texas Intermediate (WTI) slipped 1.06% to $73.02 per barrel after dropping 1.15% to $72.96 per barrel.
Reinforcing the weak demand outlook was the move of top oil exporter Saudi Arabia over the weekend to trim the official selling price (OSP) for February Arab light crude to Asia by $2.00 to a 27-month low of $1.50 per barrel.
Saudi Aramco also slashed all prices for February delivery to Northwest Europe, the Mediterranean, and North America.
Analyst Tony Sycamore said considering only the fundamentals, including higher supplies, more OPEC and non-OPEC output, and a substantially low Saudi OSP, would only point to a bearish crude oil.
However, according to Sycamore, such a view does not consider the developments in the Middle East, where geopolitical tensions are intensifying once more, signaling a limited downside.
Brent and WTI gained more than 2% in the first week of the New Year as investors keep an eye on the geopolitical crisis in the Middle East following the assault of Yemen’s Iran-backed Houthi rebels on ships in the Red Sea.
US Secretary of State Antony Blinken, who is in the region this week, has warned that the risk of the war in Gaza could spread throughout the Middle East.
Recent escalating aggression between Israel and Lebanon’s Hezbollah militants, intensifying attacks by Houthi on commercial shipping, and air strikes by groups supported by Tehran on US bases in Iraq have resulted in a more heated environment across the region.
Israeli Prime Minister Benjamin Netanyahu stated that they would continue the war until they have wiped out Hamas.
Higher OPEC Output Offsets Upward Pressure on Oil Prices
The upward pressure generated by geopolitical fears on crude prices was offset by OPEC’s production increase of 70,000 barrels per day (bpd) in December to 27.88 million bpd.
The rise was mainly due to a surge in Iraq, Angola, and Nigeria, easing the impact of the current cuts by Saudi Arabia and other OPEC+ members to back the oil market.
The OPEC+ reductions this year and Angola’s departure from the group are expected to trim output and market share for January. OPEC’s market share has been declining due to production curbs and the exit of a few members.
While it was fairly weak and intermittent, the conflict in the Red Sea was the only counterweight that kept oil prices from falling into a bearish position due to the prospect of softer global demand and higher inventories, according to the founder of a Singapore-based global energy market, Vandana Hari.
