Oil prices dipped in early trade on Monday on sharp price cuts by top exporter Saudi Arabia and a rise in OPEC output, offsetting worries about escalating geopolitical tensions in the Middle East.
Brent crude fell 9 cents, or 0.1%, to $78.67 a barrel by 0057 GMT, while U.S. West Texas Intermediate crude futures shed 10 cents, or 0.1%, to $73.71 a barrel.
Both contracts climbed more than 2% in the first week of 2024 after investors returned from holidays to focus on geopolitical risks 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, warned that the Gaza conflict could spread across the region without concerted peace efforts, although Israeli Prime Minister Benjamin Netanyahu vowed to continue the war until Hamas was eliminated.
Offsetting the upward pressure on prices from geopolitical concerns, output from the Organization of the Petroleum Exporting Countries (OPEC) rose 70,000 barrels per day (bpd) in December to 27.88 million bpd, according to a Reuters survey.
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 on the Middle East are undeniably rising again which will mean limited downside."
In the U.S., oil drilling rigs were up by one at 501 last week, Baker Hughes said in its weekly report.
JPMorgan forecasted 26 oil rigs to be added this year, most of them in the Permian during the first half of the year.
"The timing of drilling is paramount, as rig additions at the start of the year will contribute to 2H24 production growth," the bank's analysts said in a note.
"Despite an impressive 1 mbd of crude and condensate production growth in 2023, we expect 2024 supply to increase by only 400 kbd due to lower completions activity levels vs 2023."
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