Oil sinks as Saudi Arabia slashes prices ahead of Opec+ output boost

On Sunday, the world’s leading oil exporter sharply cut May crude prices for its Asian buyers

Saudi Aramco's oilfield in the Empty Quarter, Shaybah, Saudi Arabia. Reuters

Oil prices plunged nearly 4 per cent on Monday as Saudi Arabia cut the official selling prices for its oil by the most in more than two years ahead of a production boost scheduled for next month.

Saudi Aramco, the world’s leading oil exporting company, on Sunday slashed crude oil prices for Asian buyers for May, after the Opec+ alliance of oil-producing countries on Thursday announced larger-than-expected output increase in a surprise move.

The group said it will add 411,000 barrels a day to the market next month, rather than 137,000 bpd as earlier announced.

Brent, the benchmark for two thirds of the world’s oil, was down 3.78 per cent at $63.10 a barrel at 12pm UAE time on Monday. West Texas Intermediate, the gauge that tracks US crude, was 3.95 per cent lower at $59.54 a barrel.

“Opec+ continues to highlight flexibility and the actual supply increase could eventually be much less than outlined. Demand conditions will be essential, and actual adherence to the compensation plans,” Monica Malik, chief economist, Abu Dhabi Commercial Bank, told The National.

“The GCC remains less impacted than other EM [emerging market] economies, providing a comparative advantage.”

The intensifying trade war and concerns it could lead to a global recession and dent crude demand, also dragged oil prices lower. Crude plunged to its lowest levels in more than three years on Friday, as China hit back against US President Donald Trump's tariffs with its own additional levies on US goods.

“The barrel of US crude lost more than 6 per cent last Friday and tipped a toe below the $60 per barrel level this morning as Saudi Arabia cut its oil price to Asia to a four-month low on rising recession odds,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

The outlook remains “comfortably negative with the possibility of a further fall toward the $50 per barrel level”, she added. “Price recoveries could be interesting top selling opportunities”

The drop of 17 per cent in crude prices over the last five sessions, is "enormous even for a volatile asset like crude oil", Vijay Valecha, chief investment officer at Dubai-based Century Financial, said.

“Oil prices are currently suffering from the double whammy of possible surplus gluts, based on the latest Opec decision and the expectations of a significant drop in demand due to the possibility of a global recession,” he told The National.

“With the ongoing market sell-off happening at a frenzied pace, the probability of a global recession rises with each passing day.”

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Swiss lender UBS expects volatility in crude markets to remain stay high in the short term.

“With financial markets in panic mode, oil prices are likely to stay volatile in the near term. But we retain our constructive outlook, as the oil market is undersupplied and demand growth remains healthy,” Giovanni Staunovo, strategist at UBS, said in a recent research note.

On Friday, US Federal Reserve chairman Jerome Powell said that Mr Trump’s larger-than-expected tariffs could drive up inflation and weaken economic growth, but maintained that the central bank is not rushing to cut interest rates.

“Oil and gas imports to the US have been exempted from the new round of tariffs. That said, global energy consumption is likely to take a hit if the global economy slips into a recession,” BMI, a Fitch Solutions company, said in a research note.

“For oil, this would be exacerbated by supply additions from Opec+ and non-Opec producers that are forecast for 2025.”