Global oil prices experienced a dip in early trade on Monday, influenced by significant price reductions from Saudi Arabia, the top oil exporter. Brent crude witnessed a marginal decrease of 0.1%, reaching $78.67 a barrel, while U.S. West Texas Intermediate crude futures also dropped by 0.1%, settling at $73.71 a barrel.
The decline in oil prices comes in the wake of escalating geopolitical tensions in the Middle East, particularly in response to Yemeni Houthi attacks on ships in the Red Sea. U.S. Secretary of State Antony Blinken, currently in the Middle East, warned of potential regional spread of the Gaza conflict without concerted peace efforts. However, Israeli Prime Minister Benjamin Netanyahu pledged to continue the war until Hamas is eliminated, according to Reuters.
Despite these geopolitical concerns, the Organization of the Petroleum Exporting Countries (OPEC) reported a rise in output by 70,000 barrels per day (bpd) in December, reaching 27.88 million bpd, according to a Reuters survey. This increase in supply, coupled with competition from other producers, led Saudi Arabia to cut the February official selling price (OSP) of its flagship Arab Light crude to Asia, marking the lowest level in 27 months.
IG analyst Tony Sycamore highlighted that focusing solely on fundamental factors, such as higher inventories and increased OPEC/non-OPEC production, would lead to a bearish outlook for crude oil. However, geopolitical tensions in the Middle East are undeniably rising, providing a counterbalance to the downward pressure on prices.
In the U.S., the Baker Hughes weekly report revealed a one-rig increase in oil drilling rigs to 501. JPMorgan forecasts the addition of 26 oil rigs this year, primarily in the Permian region during the first half of the year. Despite a substantial 1 million barrels per day (mbd) growth in crude and condensate production in 2023, the bank anticipates a more moderate increase of 400 thousand barrels per day (kbd) in supply for 2024 due to lower completion activity levels compared to the previous year.