An worker in a branded helmet is pictured at Saudi Aramco oil facility in Abqaiq, Saudi Arabia October 12, 2019.
Maxim Shemetov | Reuters
Oil declined more than 4% on Monday after Saudi Arabia slashed its costs, elevating renewed worries that the market is oversupplied on the identical time as demand is weakening.
The West Texas Intermediate futures contract for February misplaced $3.67, or 4.93%, to commerce at $70.17 a barrel. The Brent futures contract for March shed $3.44, or 4.37%, to $75.32 a barrel.
The selloff comes after Saudi Aramco on Sunday sharply cut the price of Arab Light Crude to Asian clients by $2 per barrel.
The Saudi price cut comes amid persistent market weak spot due largely to document U.S. crude manufacturing and softening demand in China. OPEC and its allies are reducing their manufacturing by 2.2 million barrels per day this quarter in an effort to stability the market.
“While it’s attainable that the price discount was to take care of market share within the face of manufacturing cuts, the market is taking it as a transparent signal that the economic system is slowing. Maybe the touchdown won’t be so delicate,” Phil Flynn of the Price Futures Group wrote on Monday.
U.S. crude and Brent, the global benchmark, each ended the primary week of 2024 more than 2% larger on mounting tensions within the Middle East, however provide and demand issues have persistently overshadowed geopolitical dangers available in the market.
“The market appears to really feel that geopolitical danger is not going to influence provide and if it does, demand is weak so it is not going to matter,” Flynn wrote.
Repeated assaults by Houthi militants, who’re allied with Iran, on business vessels within the Red Sea have compelled transport large Maersk to keep away from the essential waterway for the foreseeable future. The scenario can be deteriorating in Lebanon, the place a Hezbollah commander was killed Monday in an obvious Israeli airstrike.
Analysts say a regional struggle that attracts in Iran may result in a disruption within the Strait of Hormuz which might have a fabric influence available on the market. So far, nonetheless, rising tensions within the area haven’t led to a disruption in crude provides.
Meanwhile, the U.S. pumped an estimated 13.2 million barrels per day of crude oil within the final week of 2023, and its inventories of gasoline and distillate each soared by more than 10 million barrels.