Oil markets tumble over 3% as Saudi Arabia slashes prices

WEB DESK: In a significant market development, oil prices witnessed a decline of more than 3 per cent on Monday, primarily attributed to substantial price reductions by leading exporter Saudi Arabia and an uptick in OPEC production.

This downturn counteracted concerns stemming from escalating geopolitical tensions in the Middle East.

Brent crude experienced a notable dip of $2.63, equivalent to 3.3 per cent, settling at $76.13 per barrel by 11:11 a.m. EST (1611 GMT). Concurrently, US West Texas Intermediate crude futures incurred a loss of $2.94, marking a 4 per cent decrease and reaching $70.87 per barrel.

The first week of 2024 saw both contracts surging over 2 per cent, spurred by heightened geopolitical risks in the Middle East following attacks by Yemen’s Houthis on ships in the Red Sea.

On Sunday, Saudi Arabia responded to mounting supply and increased competition by announcing a significant cut in the February official selling price (OSP) of its flagship Arab Light crude to Asia, marking the lowest level in 27 months.

Analysts express concerns about potential impacts on demand in China and the global market.

Phil Flynn, an analyst at Price Futures Group, commented, That’s raising concerns about demand in China and global demand as well. The stock market is off to a weak start this year, and this news from Saudi Arabia has caused the bottom to fall out.

A recent Reuters survey highlighted a rise in OPEC oil output in December, with increases in Iraq, Angola, and Nigeria offsetting ongoing cuts by Saudi Arabia and other members of the broader OPEC+ alliance. Anticipated further cuts in 2024 and Angola’s exit from OPEC are expected to impact January output and market share.

IG analyst Tony Sycamore said, If we were just to focus on the fundamentals, including higher inventories, higher OPEC/non-OPEC production, and a lower than expected Saudi OSP, it would be impossible to be anything other than bearish on crude oil.

However, he added, that doesn’t take into account the fact that geopolitical tensions in the Middle East are undeniably rising again, which will mean limited downside.

US Secretary of State Antony Blinken engaged in additional talks with Arab leaders on Monday as part of diplomatic efforts to prevent the further spread of the conflict in Gaza.

The ongoing war has already resulted in violence in various regions, including the Israeli-occupied West Bank, Lebanon, Syria, and Iraq, and has triggered Houthi attacks on Red Sea shipping lanes.

Amidst the oil price decline, a force majeure was declared by Libya’s National Oil Corporation on Sunday at its Sharara oilfield, which has the capacity to produce up to 300,000 barrels per day, providing a partial buffer to the overall downturn.

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