Oil futures slump as Saudis cut prices

Posted By: EN Todayon: January 08, 2024In: General Energy News, Oil & Gas News

Oil futures slumped Monday, under pressure after Saudi Arabia cut crude prices to all regions and as surveys showed higher production by members of the Organization of the Petroleum Exporting Countries.

Price action

West Texas Intermediate crude for February delivery
CL00,
-3.36%

CL.1,
-3.36%

CLG24,
-3.36%
fell $2.24, or 3%, to $71.57 a barrel on the New York Mercantile Exchange.
March Brent crude
BRN00,
-3.12%

BRNH24,
-3.12%,
the global benchmark, dropped $2.15, or 2.7%, to $76.61 a barrel on ICE Futures Europe.

Market drivers

State producers Saudi Aramco on Sunday said it would cut its official selling price for crude to all regions, including its largest market in Asia in February. The spread for Saudi crudes, including its flagship Arab light, over local benchmarks will be cut by up to $2 a barrel.

“When a major oil producer like Saudi Arabia offers price discounts, it’s either a sign of concern about weakening demand conditions or an attempt to stop foreign producers such as the U.S.A. from stealing market share away,” Marios Hadjikyriacos, senior investment analyst at XM, said in a note. “Either way, it’s a bearish signal for energy prices.”

Oil bounced last week, finding some support as attacks on shipping in the Red Sea by Iran-backed Houthi rebels operating out of Yemen forced a rerouting of crude and stoked fears of a broader conflict that could further threaten Middle Eastern petroleum flows. The shifts were seen stoking demand for U.S. crude, helping to narrow WTI’s discount to Brent and potentially putting U.S. exports on track to break records, analysts said.

See: Why Red Sea chaos is driving oil buyers ‘into the arms of U.S. shale producers’

Meanwhile, a Reuters survey released on Friday showed that production by OPEC members rose in December, with increases by Iraq, Nigeria and Angola offsetting cuts by Saudi Arabia and other members of OPEC+. Angola last month announced it would leave OPEC.

The survey put production at 27.88 million barrels a day, up 70,000 barrels a day from November. Output was down more than 1 million barrels a day from December 2022.

Analysts said production disruptions in Libya helped lift crude last week and will limit downside.

After protests last week forced Libya to shut the Sharara oil field, Libya’s National Oil Corporation on Sunday declared force majeure at the field, news reports said. The shutting of the oil field saw total Libyan oil output fall from around 1.2 million barrels a day to 981,000 barrels a day on Friday, analysts at ING said.