An employee wears a branded helmet at a Saudi Aramco oil facility in Abqaiq, Saudi Arabia, October 12, 2019.
Maxim Shemetov | Reuters
Oil prices fell more than 4% on Monday after Saudi Arabia cut its prices, raising renewed fears of excess supply in the market at the same time as demand is weakening.
the West Texas Intermediate February futures lost $3.67, or 4.93%, to trade at $70.17 per barrel. the Brent March futures fell $3.44, or 4.37%, to $75.32 per barrel.
The sales come after Saudi Aramco on Sunday sharply reduced the price of Arab Light crude oil for Asian customers by $2 per barrel.
The Saudi price cut comes amid continued weakness in the market due in large part to record production of US crude and declining demand in China. OPEC and its allies are reducing their production by 2.2 million barrels per day this quarter in an attempt to balance the market.
“While it is likely that the price cuts are aimed at maintaining market share in the face of production cuts, the market sees it as a clear sign that the economy is slowing. The decline may not be so quiet,” said Phil Flynn of Harvard University. Price Futures Group wrote on Monday.
US crude and Brent crude, the global benchmark, ended the first week of 2024 higher than 2% due to rising tensions in the Middle East, but supply and demand concerns have consistently overshadowed geopolitical risks in the market.
“The market seems to feel that geopolitical risks won’t impact supply, and if they do, demand is weak so it won’t matter,” Flynn wrote.
Repeated attacks by Houthi militants, allied with Iran, on commercial ships in the Red Sea have forced shipping giant Maersk to avoid the vital waterway for the foreseeable future. The situation is also deteriorating in Lebanon, where a Hezbollah commander was killed on Monday in an apparent Israeli air strike.
Analysts say that a regional war waged by Iran could lead to turmoil in the Strait of Hormuz, which would have a material impact on the market. But so far, rising tensions in the region have not led to an interruption in crude oil supplies.
Meanwhile, the United States pumped an estimated 13.2 million barrels per day of crude oil in the last week of 2023, and its gasoline and distillate inventories rose by more than 10 million barrels.