Adedapo Adesanya
By Adedapo Adesanya
The oil market fell by about 4 per cent on Monday on sharp price cuts by Saudi Arabia and a rise in output that offset supply concerns generated by escalating geopolitical tension in the Middle East.
Yesterday, Brent crude went down by $2.99 or 3.8 per cent to $75.77 a barrel and the US West Texas Intermediate (WTI) crude futures lost $3.41 or 4.6 per cent to traded at $70.40 a barrel.
Rising supply and competition from rival producers have prompted Saudi Arabia to cut the February official selling price (OSP) of its flagship Arab Light crude to Asia to the lowest level in over two years.
Saudi Aramco slashed the price for February-loading Arab Light to Asia by $2 a barrel from January to $1.50 a barrel over Oman/Dubai quotes, a level last seen for November 2021.
The price cut, the biggest in 13 months, is in line with market expectations, as refiners called for competitive prices from Saudi Arabia compared to crude oil supplied from other Middle Eastern producers and the arbitrage cargoes from the Atlantic Basin.
Despite a combined voluntary output cut of 2.2 million barrels per day by the Organisation of the Petroleum Exporting Countries and its allies (OPEC+), market participants are not convinced the supply reduction will be enough to stop a build-up in global oil inventories and to fuel an oil price rally until at least the second quarter of 2024.
OPEC oil output rose in December as increases in Angola, Iraq, and Nigeria offset continuing cuts by Saudi Arabia and other members of the wider OPEC+ alliance, a Reuters survey showed on Monday.
The boost came ahead of further OPEC+ cuts in 2024 and Angola’s exit from OPEC, which are set to lower January output.
The US Secretary of State, Mr Antony Blinken, held more talks with Arab leaders on Monday as part of a diplomatic push to stop the war in Gaza from spreading further.
The conflict has already sparked violence in the Israeli-occupied West Bank, Lebanon, Syria, and Iraq, and also led to Houthi attacks on Red Sea shipping lanes.
Last week, geopolitical risk in the Middle East intensified after further attacks by Yemen’s Houthis on ships in the Red Sea.
Meanwhile, the oil price slide was tempered by a force majeure by Libya’s National Oil Corporation on Sunday at its Sharara oilfield, which can produce up to 300,000 barrels per day.
Protests at the Sharara field began last week, with protesters demanding greater government involvement in the southern region of Fezzan, including more job creation and more investments in the economic development of the region.
Now there is worry that the protesters could also shut down the 60,000 barrels per day El Feel field, which is near Sharara.
