As the first month of the current oil trading year nears its end, the Oilholic's thoughts on the direction of crude prices hasn't materially altered. We're likely to see prices oscillate in the range of $70 and $85 per barrel in 2024, using Brent as a benchmark. And that's because the bearish bias in wider market fundamentals remains the same in a different trading year, despite all the geopolitical flare-ups we've seen October. We'll touch on those later in this blog. However, admittedly it has been the maddest possible start to trading.
Feeling the pulse of the market and tepid demand, the Saudis made two profound short- and medium-term decisions. The first came early in the month after Aramco - the Saudi state-owned behemoth - announced a cut to official selling prices (OSPs) for all regions, including lucrative Asian markets, for several crude grades. These included Aramco's flagship Arab Light crude oil. Aramco said cuts in Asia would be as high as $2 per barrel versus the Dubai Oman regional crude benchmark from January levels.
The Saudis, having voluntarily cut their headline production down to 9 million barrels per day (bpd), want to make sure every single drop of it gets sold in a competitive market receiving plenty of barrels, especially of US light crude.
The second move came late-January, after Aramco said it was stopping its expansion plans and concentrating on a maximum sustained capacity of 12 million bpd. This immediately generated headlines along the lines of the Saudis acknowledging the end of oil, which, as the Oilholic said via market commentary on several broadcasters, is a load of rubbish.
Aramco plans to finish the oilfields it has started - namely Berri (250,000 bpd), Dammam (75,000 bpd), Marjan (300,000 bpd) and Zuluf (600,000 bpd). There's only one project cancellation and the company intends to let some other existing fields decline. So with respect, it is nothing more than a pragmatic business move faced with changing medium- to long-term demand in a market the Saudis hope to tap with aplomb for as long as they can.
Away from Saudi moves there were geopolitical flash points aplenty. But none of these managed to move the oil price quite like they used to back when US crude barrels weren't keeping the global markets honest. Following weeks of attacks by Yemen's Iran-backed Houthi rebels on energy and commercial shipping in the Red Sea, the US and UK pounded Houthi positions and infrastructure. The Houthis vowed a response and their sporadic attacks on shipping continued.
Then on January 28, after over 170 drone and missile attacks on US bases in Syria, Jordan and Iraq since October by Iran-backed proxies in the Middle East, one got through and killed three service personnel. The US' imminent response is to be expected and could mark a dangerous escalation. Where this goes is anybody's guess. But an attack by the US on Iranian soil appears unlikely. (Should it happen, and its hasn't since the 1980s, we could see crude prices around the $90s).
As things stand, crude prices remain range bound. January offered precious little to alter this despite it being one of the most volatile starts to a trading year. Well that's all for now folks. More market thoughts to follow. Keep reading, keep it here, keep it 'crude'!
