Singapore (Reuters) – The early hours of Monday witnessed a decline in oil prices, driven by significant price reductions from top exporter Saudi Arabia and an uptick in OPEC output. These developments countered concerns about escalating geopolitical tensions in the Middle East.
Brent crude experienced a dip of 9 cents, or 0.1%, settling at $78.67 a barrel by 0057 GMT. Simultaneously, U.S. West Texas Intermediate crude futures saw a 10-cent decrease, or 0.1%, landing at $73.71 a barrel.
In the initial week of 2024, both contracts had surged more than 2%, capturing investor attention upon their return from holidays. The focus shifted to geopolitical risks in the Middle East following attacks by Yemeni Houthis on ships in the Red Sea.
During his Middle East visit this week, U.S. Secretary of State Antony Blinken expressed concerns that the Gaza conflict could spread across the region without concerted peace efforts. However, Israeli Prime Minister Benjamin Netanyahu affirmed a commitment to continue the war until Hamas was eliminated.
Despite the upward pressure on prices from these geopolitical concerns, a Reuters survey revealed a 70,000 barrels per day (bpd) increase in OPEC output in December, reaching 27.88 million bpd.
To counter rising supply and competition with rival producers, Saudi Arabia announced a cut in the February official selling price (OSP) of its flagship Arab Light crude to Asia, marking the lowest level in 27 months.
Analyst Tony Sycamore from IG commented on the contrasting fundamentals, stating, “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 crude oil. However, that doesn’t take into account the fact that geopolitical tensions in the Middle East are undeniably rising again, which will mean limited downside.”
In the U.S., Baker Hughes reported a one-rig increase in oil drilling rigs last week, bringing the total to 501. JPMorgan forecasts the addition of 26 oil rigs this year, primarily in the Permian region during the first half.
The bank’s analysts noted, “The timing of drilling is paramount, as rig additions at the start of the year will contribute to 2H24 production growth.” Despite impressive crude and condensate production growth in 2023, the expectation for 2024 is a more moderate increase of 400 kbd due to lower completion activity levels compared to 2023.