Oil prices dropped sharply this morning, and prices dropped further in the afternoon. As we approached the European close, the front-month WTI contract was down around 4% currently. At the end of last week, Reuters reported that OPEC production rose in December, cancelling out existing output cuts chiefly from Saudi Arabia and Russia. The news came as additional cuts come into play for the first quarter of 2024. When first announced back in November, these were shrugged off by the market as being not deep enough nor prolonged enough to have a discernible effect. Indeed, oil sold off on the news and has struggled ever since.
Yesterday, seemingly in response to the supply increase, Saudi Arabia cut the official selling price of one of its key contracts to its lowest level in over two years. This all adds to concerns that the global market is drowning in oil that it can’t use up quickly enough, even at attractive prices for consumers. This fundamental issue continues to exert downside pressure on the oil market. As we can see from the chart, the recent breakout above the downward-sloping trendline appears to be running out of momentum. Yet the ongoing geopolitical tensions across the Middle East look as if they are preventing an even steeper sell-off as prices remain above a band of support that stretches all the way down to $67.50.
Yesterday, seemingly in response to the supply increase, Saudi Arabia cut the official selling price of one of its key contracts to its lowest level in over two years. This all adds to concerns that the global market is drowning in oil that it can’t use up quickly enough, even at attractive prices for consumers. This fundamental issue continues to exert downside pressure on the oil market. As we can see from the chart, the recent breakout above the downward-sloping trendline appears to be running out of momentum. Yet the ongoing geopolitical tensions across the Middle East look as if they are preventing an even steeper sell-off as prices remain above a band of support that stretches all the way down to $67.50.