Oil falls more than 4% as Saudi price cut heightens global demand

Oil declined more than 4% on Monday after Saudi Arabia slashed its prices, raising renewed worries that the market is oversupplied at the same time as demand is weakening.

The West Texas Intermediate futures contract for February lost $3.67, or 4.93%, to trade at $70.17 a barrel. The Brent futures contract for March shed $3.44, or 4.37%, to $75.32 a barrel.

The selloff comes after Saudi Aramco on Sunday sharply cut the price of Arab Light Crude to Asian customers by $2 per barrel.

The Saudi price cut comes amid persistent market weakness due in large part to record U.S. crude production and softening demand in China. OPEC and its allies are cutting their production by 2.2 million barrels per day this quarter in an effort to balance the market.

“While it is possible that the price reduction was to maintain market share in the face of production cuts, the market is taking it as a clear sign that the economy is slowing. Maybe the landing might not be so soft,” Phil Flynn of the Price Futures Group wrote on Monday.

U.S. crude and Brent, the global benchmark, both ended the first week of 2024 more than 2% higher on mounting tensions in the Middle East, but supply and demand concerns have persistently overshadowed geopolitical risks in the market.

“The market seems to feel that geopolitical risk will not impact supply and if it does, demand is weak so it will not matter,” Flynn wrote.

This is a developing story. Please check back for updates.