Saudi Arab Light Price Cuts Cause 3%-Plus Loss For Brent, WTI

Recalcitrant OPEC members are blamed for the Saudis' action: File Image/Pixabay

A selling price cut of Arab Light crude to Asia along with increased output from the Organization of the Petroleum Exporting Countries (OPEC) lessened supply fears on Monday and caused a slide of over 3 percent for two key benchmarks.

Brent dropped $2.75, or 3.4 percent, to settle at $76.01 per barrel, while West Texas Intermediate settled down $2.87, or 3.8 percent, at $70.94.

Rising supply was said to have motivated Saudi Arabia to cut its Arab Light crude for February to the lowest level in 27 months, but John Evans, analyst at PVM, suggested several reasons may have been at play.

He said, “Oil watchers are rightly questioning that the kingdom’s cut is not only aimed at quelling interference from non-OPEC supply but from its very own cartel membership.”

OPEC output reportedly rose in December thanks to Iraq, Angola, and Nigeria failing to abide by the cartel’s  mandate to reduce production.

Tony Sycamore, analyst at IG, pointed out that if the focus was purely on fundamentals, “It would be impossible to be anything other than bearish on crude oil.”

Indeed, a new report by Deloitte Canada predicted  that WTI would average $72 for the year ahead, over 7 percent below the 2023 average and 29 percent below 2022; however, analysts conceded that consumers should benefit in terms of lower prices for home heating and at the gas pumps.

Meanwhile, Citigroup Inc. estimated that funds tracking the Bloomberg Commodity Index and the S&P GSCI are likely to sell about $2 billion of WTI this week as part of a portfolio realignment.

Analysts at TACenergy wrote in a note to clients, “Energy markets are seeing heavy selling to start the week, pushing prices back near the low end of their recent trading range and threatening a much bigger slide of technical support breaks down.”