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Oil prices shared a decline of over 1% on Monday due to significant price reductions by Saudi Arabia, coupled with a rise in OPEC output, counteracting worries about escalating geopolitical tensions in the Middle East.
Brent crude fell by 1.09% to $77.90 a barrel, while U.S. West Texas Intermediate crude futures dropped by 1.15% to $72.96.
This dip was primarily attributed to Saudi Arabia’s substantial reduction in the February official selling price (OSP) of its Arab Light crude to Asia, the lowest in 27 months, and the increased OPEC production.
Vandana Hari from Vanda Insights emphasized that Saudi Aramco’s price cuts for February strengthened the narrative of weak demand in the market.
Meanwhile, IG analyst Tony Sycamore highlighted the bearish outlook based on fundamentals like higher inventories and production but also acknowledged the geopolitical tensions in the Middle East, which could limit crude oil’s downside.
While oil prices initially surged over 2% in the first week of 2024 due to heightened geopolitical risks following attacks by Yemeni Houthis, concerns about softening global demand and rising inventories persisted. The Red Sea tensions, albeit weak in impact, counterbalanced the bearish pressure on prices.
U.S. Secretary of State Antony Blinken’s statements on the potential regional spread of the Gaza conflict and Israeli Prime Minister Benjamin Netanyahu’s commitment to continuing the war added to geopolitical concerns.
Concurrently, OPEC’s December output saw a rise of 70,000 barrels per day, reaching 27.88 million bpd, according to a Reuters survey.
In the U.S., oil drilling rigs saw a slight increase, reaching 501 last week, as reported by Baker Hughes in its weekly update. JPMorgan’s forecast anticipates the addition of 26 oil rigs this year, primarily in the Permian region, during the year’s initial half.
Overall, the oil market is navigating a complex landscape, balancing the effects of production dynamics, geopolitical tensions in the Middle East, and projections regarding future drilling activities, all contributing to fluctuations in oil prices.
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