Crude Conundrum: Price Cuts Counter Tensions, OPEC Boosts Supply

8 Jan 2024 , 09:33 AM

Sharp price cuts by Saudi Arabia, the world’s largest oil exporter, and an increase in OPEC production led to a decline in oil prices in early trading on Monday, offsetting concerns over growing geopolitical tensions in the Middle East.

U.S. West Texas Intermediate crude futures dropped 10 cents, or 0.1%, to $73.71 a barrel, while Brent crude declined 9 cents, or 0.1%, to $78.67 a barrel.

Following attacks by Yemeni Houthis on ships in the Red Sea, investors returned from their holidays to focus on geopolitical risks in the Middle East, which led to a spike in both contracts of more than 2% in the first week of 2024.

This week, while visiting the Middle East, U.S. Secretary of State Antony Blinken issued a warning that, in the absence of coordinated peace efforts, the Gaza conflict would expand throughout the region. Meanwhile, Israeli Prime Minister Benjamin Netanyahu threatened to keep fighting until Hamas was destroyed.

According to a Reuters survey, the Organization of the Petroleum Exporting Countries (OPEC) increased its output by 70,000 barrels per day (bpd) in December to 27.88 million bpd, offsetting the upward pressure on prices caused by geopolitical concerns.

Saudi Arabia lowered its flagship Arab Light crude’s February official selling price (OSP) to Asia to its lowest level in 27 months on Sunday due to increased supply and competition from other exporters.

According to Baker Hughes’ weekly report, there were 501 oil drilling rigs in the United States last week, an increase of one.

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