Oil prices dipped by more than 1% on Monday following Saudi Arabia’s strategic decision to implement sharp price cuts and a simultaneous rise in OPEC output.
This development countered concerns surrounding escalating geopolitical tensions in the Middle East and illustrated the complex dynamics influencing global oil markets.
Brent crude oil, against which Nigerian crude oil is priced, slipped by 1.09% or 86 cents to settle at $77.90 per barrel at around 4:44 am on Monday.
Concurrently, U.S. West Texas Intermediate crude oil witnessed a decline of 1.15% or shed 85-cent close at $72.96 per barrel.
The notable move by Saudi Arabia involved cutting the February official selling price (OSP) of its primary Arab Light crude to Asia, reaching the lowest level observed in 27 months.
Vandana Hari, the founder of Vanda Insights and a prominent oil market analysis provider, highlighted this action as reinforcing the narrative of weak demand.
Analysts like Tony Sycamore from IG acknowledged the bearish outlook portrayed by fundamental factors such as increased inventories, elevated OPEC/non-OPEC production, and lower-than-expected Saudi OSP.
However, he emphasized that geopolitical tensions in the Middle East could act as a mitigating factor, introducing a level of uncertainty to the market dynamics.
The first week of 2024 witnessed both Brent crude and U.S. West Texas Intermediate crude futures experiencing a positive surge of over 2%, primarily attributed to heightened geopolitical risks in the Middle East.
Attacks by Yemeni Houthis on ships in the Red Sea intensified concerns, prompting investors to focus on potential disruptions to the region’s stability.
The ongoing visit of U.S. Secretary of State Antony Blinken to the Middle East added to the geopolitical narrative.
Blinken expressed apprehensions about the Gaza conflict spreading unless concerted peace efforts were made.
In contrast, Israeli Prime Minister Benjamin Netanyahu vowed to persist in the conflict until Hamas was eradicated.
Despite these geopolitical concerns providing upward pressure on oil prices, a Reuters survey revealed that OPEC’s output increased by 70,000 barrels per day (bpd) in December, reaching 27.88 million bpd.
Analysts, including Vandana Hari, regarded the tensions in the Red Sea as a somewhat weak and intermittent counterweight against the broader bearish sentiment influenced by expectations of softened global demand and rising inventories.
Adding another layer to the oil market dynamics, Baker Hughes reported a marginal increase of one oil drilling rig in the U.S., bringing the total to 501 for the week.
JPMorgan forecasted the addition of 26 oil rigs in the coming year, with a concentration expected in the Permian region during the first half of 2024.
The juxtaposition of these factors contributes to the intricate landscape shaping the trajectory of oil prices in the near term.