Saudi Arabia reduced the official selling price (OSP) of its flagship Arab Light crude to Asia for February to the lowest level in 27 months on Sunday due to increased supply and competition from other producers.
Sharp price cuts by Saudi Arabia, the world’s largest oil exporter, and an increase in OPEC production on Monday caused oil prices to drop by more than 1%, allaying concerns over the Middle East’s growing geopolitical tension.
By 0344 GMT, Brent crude had fallen 1.09%, or 86 cents, to $77.90 per barrel, while West Texas Intermediate crude futures had fallen 1.15%, or 85 cents, to $72.96 per barrel.
Vandana Hari, the founder of Singapore-based global oil markets macro-analysis provider, stated that “Saudi Aramco slashing its February OSPs bolsters the weak demand narrative.”
Saudi Arabia reduced the official selling price (OSP) of its flagship Arab Light crude to Asia for February to the lowest level in 27 months on Sunday due to increased supply and competition from other producers.
Expert Weighs Oil’s Fate
Tony Sycamore, IG Analyst, stated that it would be hard to be anything other than bearish on crude oil if they were to only concentrate on the fundamentals, which included increasing stockpiles, higher OPEC and non-OPEC production, and a lower-than-expected Saudi OSP.
That does not, however, account for the fact that there will be little negative impact because geopolitical tensions in the Middle East are unquestionably growing again.
During the first week of 2024, both contracts had risen by more than 2%. This occurred after several investors returned from the holidays to now concentrate on the geopolitical risk in the Middle East. This was followed by the attacks by Yemeni Houthis on ships in the Red Sea.
The US Secretary of State Antony Blinken, who also visited the Middle East last week, said that the Gaza conflict would continue to spread unless there were any concerted peace efforts. Benjamin Netanyahu, Israeli Prime Minister, vowed to continue going to war unless Hamas was removed.
Maersk, a Danish-based shipping giant, commented that it would be pulling its ships out of the Red Sea region for the “foreseeable future.” The region is a vital commerce route between Europe and Asia. It described the situation there as “highly unstable”.
According to a survey by a renowned news agency, the Organisation of the Petroleum Exporting Countries (OPEC) increased its output by 70,000 barrels per day (bpd) in December to 27.88 million bpd, offsetting the higher pressure on prices caused by geopolitical concerns.
Vandana Hari of Vandana Insights further stated that the Red Sea conflicts are the only, albeit feeble and intermittent, counterweight to crude prices succumbing to bearishness over prospects of falling global demand and rising stocks.
Baker Hughes mentioned in his weekly report that in the US, the oil drilling rigs went up by 501 last week.
JP Morgan, an American multinational financial services, predicted that nearly 26 oil rigs have been added this year. Most of them have been in the Permian during the first half of the year.