In the early hours of Monday, global oil prices experienced a downturn driven by significant price reductions initiated by Saudi Arabia, the leading oil exporter. This drop was compounded by an upsurge in oil output from the (OPEC) Organization of the Petroleum Exporting Countries, effectively neutralizing concerns over mounting tensions in the Middle East.
The international benchmark, Brent crude, witnessed a decrease of 0.1%, amounting to 9 cents and settling at $78.67 per barrel by 0057 GMT. Concurrently, U.S. West Texas Intermediate (WTI) crude futures also saw a decline of 0.1%, shedding 10 cents to reach $73.71 per barrel.
Although both contracts had surged more than 2% during the initial week of 2024, triggered by renewed focus on geopolitical risks in the Middle East following Red Sea ship attacks by Yemeni Houthis, the recent Saudi price adjustments and increased OPEC output have countered these inclinations.
The Gaza Conflict
U.S. Secretary of State Antony Blinken’s warnings during his Middle East visit about the potential spread of the Gaza conflict across the region without substantial peace efforts were met by Israeli Prime Minister Benjamin Netanyahu’s commitment to continue the conflict until Hamas is eradicated.
Despite the escalating geopolitical tensions in the region, OPEC’s output surged by 70,000 barrels per day in December, reaching 27.88 million barrels per day, as per a Reuters survey. Saudi Arabia’s decision to slash the February official selling price (OSP) of its main Arab Light crude to Asia, the lowest in 27 months, further contributed to the downward pressure on prices.
Analyzing the market, IG analyst Tony Sycamore acknowledged the bearish stance based on fundamental factors like increased inventories and production and Saudi OSP cuts. However, Sycamore also emphasized that rising tensions in the Middle East could limit the downside potential for oil prices.
Increase in Oil Drilling Rigs
In the United States, the number of active oil drilling rigs increased by one to 501 last week, according to Baker Hughes’ weekly report. JPMorgan anticipates an addition of 26 oil rigs this year, primarily in the Permian region during the initial half of the year.
Highlighting the significance of drilling timing, JPMorgan’s analysts emphasized that early-year rig additions would contribute to second-half 2024 production growth. Despite a noteworthy growth of 1 million barrels per day (mbd) in crude and condensate production in 2023, they expect a more moderate increase of 400 thousand barrels per day in 2024 due to reduced completion activity compared to 2023.