. Oil Prices Slide: Saudi Cuts vs. Middle East Tensions

Oil Prices Slide: Saudi Cuts vs. Middle East Tensions

Oil Prices Slide: Saudi Cuts vs. Middle East Tensions

08 Jan 2024

Oil prices decline as Saudi price cuts counter Middle East worries.

On Monday, oil prices dropped over 2% following significant price reductions by leading exporter Saudi Arabia and an increase in OPEC output. This countered worries about supply arising from heightened geopolitical tensions in the Middle East.

Brent crude declined by 2.2%, or $1.74, reaching $77.02 per barrel by 1024 GMT, while U.S. West Texas Intermediate crude futures dropped by 2.3%, or $1.73, to $72.08.

Both contracts experienced over a 2% increase in the initial week of 2024, driven by escalating geopolitical risks in the Middle East following attacks by Yemeni Houthis on ships in the Red Sea.

Prompted by increasing supply and competition with rival producers, Saudi Arabia reduced the February official selling price (OSP) of its primary Arab Light crude to Asia on Sunday, marking the lowest level in 27 months.

A Reuters survey on Friday revealed an increase in OPEC oil output in December, driven by rises in Iraq, Angola, and Nigeria, compensating for ongoing cuts by Saudi Arabia and other OPEC+ members.

This surge precedes further OPEC+ cuts in 2024 and Angola’s withdrawal from OPEC is expected to reduce January output and market share.

Despite bearish fundamentals like higher inventories and production, lower-than-expected Saudi OSP, and geopolitical tensions in the Middle East, particularly in the Red Sea, provide some support to crude oil prices. Additionally, a force majeure at Libya’s Sharara oilfield on Sunday added to the supportive factors.