1/8/2024

Oil fell by more than 1% – what is the reason?

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ХОЧЕШЬ УЗНАТЬ КАК ЗАРАБАТЫВАТЬ НА НОВОСТЯХ?

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Key points:

  • The fall was caused by two factors: a decrease in oil prices by Saudi Arabia and an increase in OPEC production.
  • Saudi Arabia has cut the February official selling price (OSP) of its flagship Arab Light crude for shipments to Asia to its lowest level in 27 months.
  • Geopolitical tensions in the Middle East put some pressure on prices, but were unable to fully offset the price decline from other factors.

Oil prices declined on Monday as a result of Saudi Arabia’s price cuts and rising OPEC production, overshadowing concerns about escalating geopolitical tensions in the Middle East.

Brent crude dropped 0.93%, or 73 cents, to $78.03 per barrel, following a decline of more than 1% earlier in the session. American West Texas Intermediate crude futures also shed 1.04%, or 77 cents, to $73.04 per barrel.

“Saudi Aramco’s cut to its February futures prices fuels rumors of weak demand,”

— commented Vandana Hari, founder of the oil market analysis company Vanda Insights.

Saudi Arabia reduced the February official selling price (OSP) of its flagship Arab Light crude to the lowest level in 27 months in response to rising supply and growing competition from other producers.

The decision came as both Brent and U.S. West Texas Intermediate crude futures rose more than 2% in the first week of 2024, as investors turned their attention to geopolitical risks in the Middle East following attacks on ships in the Red Sea by Yemen’s Houthi rebels.

Impact of geopolitical context

US Secretary of State Antony Blinken warned that the ongoing conflict in Gaza could escalate into a regional war if concerted peace efforts are not undertaken.

Meanwhile, Israeli Prime Minister Benjamin Netanyahu remained adamant in his commitment to continue the military operation in Gaza until the Hamas militant group is eliminated.

Despite these geopolitical tensions, OPEC production increased by 70,000 barrels per day (bpd) in December to 27.88 million bpd, somewhat offsetting the upward pressure on oil prices.

“Tensions around the Red Sea provide the only counterbalance, albeit relatively weak and intermittent, to crude oil prices, which have been succumbing to bearish sentiment on expectations of softening global demand and rising inventories,”

said Hari of Vanda Insights.

The US oil drilling rig count increased by one last week, according to Baker Hughes’s weekly report. This growth in US oil production is putting additional pressure on Saudi Arabia’s market share.

JPMorgan predicts that the US oil industry will add 26 new oil rigs in 2024, with the majority of these rigs being deployed in the Permian Basin during the first half of the year.

Shell says it could write off $4.5 billion in fourth quarter

On Monday, Shell announced a $2.5 billion to $4.5 billion write-down in its fourth-quarter earnings, mainly due to the planned sale of its Singapore oil refining and chemicals hub.

The assets, which include a 237,000-barrel-per-day refinery and a one-million-metric-ton-per-year ethylene plant in Singapore, were announced for strategic review last year.

Ahead of the fourth-quarter results released on February 1, Shell also stated that gas trading volumes would be significantly higher than the previous three-month period. Production is expected to reach 1,830,000 to 1,930,000 barrels of oil equivalent per day.

ХОЧЕШЬ УЗНАТЬ КАК ЗАРАБАТЫВАТЬ НА НОВОСТЯХ?

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