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Oil prices were on the rise in the first week of 2024 amid escalating tensions in the Middle East, but the gains were lost on Monday after Saudi Arabia announced fresh price cuts. Moreover, OPEC oil output increased last month, further intensifying the downward pressure. 

Brent, WTI Drop Over 3%

Oil prices tumbled over 3% on Monday after the world’s top exporter Saudi Arabia unveiled new price cuts, and OPEC output saw an increase, offsetting upward pressures stemming from supply concerns caused by Middle East tensions.

Specifically, Brent crude prices were down 3.1% at $76.26 at the time of writing, while the West Texas Intermediate (WTI) stood at $71.26 after dropping 3.45%. 

The downswing comes after Saudi Arabia reduced the February official selling price of its flagship Arab Light crude to Asia, pushing it down to the lowest level in 27 months. The action followed growing supply and competition with rival producers. 

“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.”

– said PVM’s John Evans.

Meanwhile, a survey by Reuters revealed on Friday that OPEC oil output increased in December as boosts in Iraq, Nigeria, and Angola counterbalanced continuing reductions by Saudi Arabia and other members of the wider OPEC+ union. The output raise came before OPEC+ cuts in 2024 and Angola’s departure from OPEC, which are poised to reduce January production and market share. 

Analysts are increasingly pessimistic about the oil market’s prospects amid these risks. 

“If we were just to focus on the fundamentals, including higher inventories, higher OPEC/non-OPEC production and a lower than expected Saudi OSP, it would be impossible to be anything other than bearish on crude oil.”

– IG analyst Tony Sycamore said.

On the other hand, the downside will likely be limited by escalating geopolitical tensions in the Middle East, the expert added. 

Crude Oil Outlook in 2024

The downturn in oil prices comes after both benchmark contracts added 2% in the first week of 2024 following an attack by Yemeni Houthis on ships in the Red Sea.

Since blasting past $90 in September, the WTI crude has been on a sharp downward trajectory in the past few months, primarily due to output concerns and expectations of weaker demand for crude oil. 

Though it is difficult to make specific predictions due to many contributing factors, technical analysis shows there is notable support at $65 for WTI, in case the recession hits the global economy. Meanwhile, Goldman Sachs recently reduced their forecast for Brent and saw the contract averaging $80-$81 this year. This prediction connects with that of the International Energy Agency (IEA), which estimates Brent at $82.57 per barrel in 2024. 

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