Oil prices dipped as the world’s top oil exporter, Saudi Arabia, cut its official selling prices for February and the Organization of the Petroleum Exporting Countries (OPEC) increased its production in December.
The move by Saudi Arabia, which lowered the price of its flagship Arab Light crude to Asia to the lowest level in 27 months, signaled fierce competition with rival producers and a desire to maintain its market share in the region.
The price cut came as OPEC, of which Saudi Arabia is the de facto leader, raised its output by 70,000 barrels per day (bpd) in December to 27.88 million bpd, according to a Reuters survey. Higher exports from Iraq and Libya, two members exempt from the group’s supply pact, mainly drove the increase.
The rise in OPEC output and the Saudi price cut offset the worries about escalating geopolitical tensions in the Middle East, which had boosted oil prices in the first week of 2024. Investors were concerned about the possibility of a wider war in the region after attacks by Yemeni Houthis on ships in the Red Sea and the ongoing conflict between Israel and Hamas in Gaza.
While in the Middle East this week, U.S. Secretary of State Antony Blinken warned that the Gaza conflict could spread across the region without concerted peace efforts. Meanwhile, Israeli Prime Minister Benjamin Netanyahu vowed to continue the war until Hamas is eliminated.
Oil prices also faced pressure from the rising U.S. oil rig count, which indicated a recovery in domestic production. Oil drilling rigs were up by one at 501 last week, Baker Hughes said in its weekly report.
The bank’s analysts said that despite an impressive 1 million bpd of crude and condensate production growth in 2023, they expected 2024 supply to increase by only 400,000 bpd due to lower completions activity levels compared to 2023.
Brent crude fell 9 cents, or 0.1%, to $78.67 a barrel by 0057 GMT, while U.S. West Texas Intermediate crude futures shed 10 cents, or 0.1%, to $73.71 a barrel.
Analysts stated that the oil market is still supported by the strong demand recovery in some parts of the world, especially in Asia, where China and India are leading the consumption growth. They also said that the prospects of a nuclear deal between the U.S. and Iran, which could ease sanctions on Tehran’s oil exports, remained uncertain and could pose a downside risk to prices.
However, they added that the oil market was also facing some challenges, such as the emergence of new variants of the coronavirus, the slow pace of vaccinations in some countries, and the environmental regulations that could limit the use of fossil fuels.
They said that the oil market was likely to remain volatile and unpredictable in the coming months, as the supply and demand dynamics could change rapidly depending on the geopolitical and economic developments.
The analysts said that the oil market was not only about numbers and prices, but also about people and the environment. They urged the oil producers and consumers to cooperate and collaborate to ensure a smooth and sustainable transition to a low-carbon future.
They said that the oil market was not only a source of wealth and power, but also a source of hope and peace.
