Saudi Price Cuts Help Offset Increased Tensions in the Middle East

A mixed week for oil prices this week as Saudi Arabia’s decision to cut its official selling price for oil exports in February overshadowed heightened tensions in the Middle East to help keep prices fairly static.

The Saudi decision to cut the price of oil exported to Asia by $2 a barrel, was taken by investors as a signal that the world’s biggest exporter may be struggling to sell all of its production. It also announced cuts to other regions ranging from $1.50 to $2 a barrel.

The move by Saudi Arabia may also be a sign that the country, which has been struggling to forge consensus and discipline within Opec+, would be unwilling to unilaterally sacrifice its own market share to support prices. “Saudi Arabia aims to remain competitive in the market” and was temporarily prioritising maintaining its market share, said Bjarne Schieldrop, a commodities analyst at SEB.

Brent peaked just below $100 a barrel in late September and has slipped since then despite the outbreak of war between Israel and Hamas. The price fell to just above $75 a barrel at the start of January before a small rebound as Houthi rebel attacks on commercial vessels in the Red Sea sparked concerns about a disruption to supplies.

Saudi Arabia’s decision to lower prices for North America, north-west Europe, Asia and the Mediterranean reflects both Riyadh’s anticipation of softening global demand and robust growth in US supply, said analysts.

Yet analysts are split on whether oil prices will surge, slide or trade within a tight range over the coming months, highlighting how uncertain market participants have become about global growth and the potential for the war between Israel and Hamas to spiral into a broader, regional conflagration.

Writing before Monday’s price decline, Paul Jackson, Invesco’s global head of asset allocation research, said that “lacklustre” economic growth might explain why earlier supply restrictions by Opec + members and the Israel-Hamas war had had a “limited effect” on energy prices. However, that could all change if Iran were to wade into the conflict, or if geopolitics were to become further unsettled by Russia or the upcoming US election, Jackson added. “I think it’s possible that the price of Brent goes above $100 in 2024,” he said.


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