On Monday, the oil market witnessed a significant downturn, with prices dropping by more than 3 percent. This decline was influenced by the substantial price reductions from Saudi Arabia, the world’s premier oil exporter, and increased production from the Organization of the Petroleum Exporting Countries (OPEC) which seemed to overshadow supply concerns that were heightened by escalating Middle East tensions.
Brent crude saw a downturn of $2.64, equating to a 3.4 percent fall, closing at $76.12 per barrel. Concurrently, U.S. West Texas Intermediate crude futures experienced a sharper decline of $3.04, or 4.1 percent, to finish at $70.77 per barrel.
Despite these contracts experiencing an upward trend exceeding 2 percent in the initial week of 2024, largely due to geopolitical risks in the Middle East after the Red Sea shipping attacks by Yemen’s Houthis, the recent developments have shifted the market outlook.
Saudi Arabia’s decision on Sunday to lower the February official selling price (OSP) of its Arab Light crude to Asia to a 27-month low has sparked concerns. Market analysts attribute this move to potential demand worries from China and other global markets, alongside a less than robust start to the year for the stock market.
A recent Reuters survey revealed that OPEC’s oil output had increased in December due to production boosts in Angola, Iraq, and Nigeria. These increments have somewhat balanced the continued production curtailments by Saudi Arabia and other members of the larger OPEC+ alliance.
The production increase precedes further OPEC+ cuts anticipated in 2024 and coincides with Angola’s departure from OPEC at the start of the year, a move that is expected to reduce January output and affect the market share.
Analysts monitoring the situation have adopted a bearish stance on crude oil, citing factors such as rising inventories, increased OPEC/non-OPEC production, and the unexpected lower Saudi OSP. These elements collectively suggest a downward pressure on oil prices in the current market climate.