Oil down more than 1% as Saudi price cuts offset Mid-East worries

(Reuters) - Oil prices fell by more than 1% on Monday on sharp price cuts by top exporter Saudi Arabia and a rise in OPEC output, offsetting worries about escalating geopolitical tension in the Middle East.

Brent crude slipped 0.93%, or 73 cents, to $78.03 a barrel by 0753 GMT after falling more than 1% earlier in the session, while U.S. West Texas Intermediate crude futures shed 1.04%, or 77 cents, to $73.04 a barrel.

" Saudi Aramco (TADAWUL:2222) slashing its February OSPs bolsters the weak demand narrative," said Vandana Hari, founder of oil market analysis provider Vanda (NASDAQ:VNDA) Insights.

Rising supply and competition with rival producers prompted Saudi Arabia on Sunday to cut the February official selling price (OSP) of its flagship Arab Light crude to Asia to the lowest level in 27 months.

"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 crude oil," IG analyst Tony Sycamore said.

"However, that doesn't take into account the fact that geopolitical tensions in the Middle East are undeniably rising again which will mean limited downside."

Both contracts climbed more than 2% in the first week of 2024 after investors returned from holidays to focus on geopolitical risk in the Middle East following attacks by Yemeni Houthis on ships in the Red Sea.

U.S. Secretary of State Antony Blinken, who is in the Middle East this week, said the Gaza conflict could spread across the region unless there is concerted peace effort.

Israeli Prime Minister Benjamin Netanyahu vowed to continue the war until Hamas was eliminated.

Offsetting upward pressure on prices from geopolitical concern, output from the Organization of the Petroleum Exporting Countries (OPEC) rose 70,000 barrels per day (bpd) in December to 27.88 million bpd, a Reuters survey showed.

"The Red Sea tensions are the only counterweight, albeit a relatively weak and intermittent one, to crude prices succumbing to bearishness over expectations of softening global demand and rising inventories," said Vanda Insights' Hari.

Separately, in the U.S., oil drilling rigs were up by one at 501 last week, Baker Hughes said in its weekly report.

JPMorgan forecast 26 oil rigs to be added this year, most of them in the Permian during the first half of the year.