Oil prices drop amid hopes of diplomatic resolution in Gaza conflict

Saudi Arabia’s Energy Minister says kingdom has huge cushion of spare oil capacity in case of major disruption to global supplies

Oil rig pumpjacks extract crude from the Wilmington Field deposits area in California. Global prices have undergone a decline. Reuters

Oil prices fell on Monday amid prospects of the Israel-Gaza conflict moving closer to a diplomatic solution.

Brent, the benchmark for two thirds of the world’s oil, was trading 1.2 per cent lower at $81.14 a barrel at 5:01pm UAE time. West Texas Intermediate, the gauge that tracks US crude, was down 1.3 per cent at $75.83 a barrel.

At the weekend, Iranian Foreign Minister Hossein Amirabdollahian visited Beirut for talks with senior figures, including Lebanese Prime Minister Najib Mikati and parliamentary Speaker Nabih Berri, as well as Hezbollah secretary general Hassan Nasrallah.

“Iran and Lebanon confirm that war is not the solution and that we absolutely never sought to expand it,” Mr Amirabdollahian said after meeting his Lebanese counterpart Abdallah Bou Habib.

Meanwhile, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said the kingdom had a “huge cushion” of spare oil capacity in case of major disruption to global supplies.

The kingdom’s decision to abandon its oil capacity expansion plans was driven by the energy transition, the minister was quoted as saying by media outlets.

Last month, Saudi Aramco, the world’s largest oil exporting company, scrapped plans to boost production capacity to 13 million barrels per day by 2027, from 12 million bpd currently.

At the moment, Saudi Arabia is producing only 9 million bpd as part of Opec+ supply cuts, making it the largest holder of spare capacity in the world.

In December, Opec+ producers agreed to voluntary output cuts totalling about 2.2 million bpd for the first quarter of this year, in addition to 3.66 million bpd of supply reductions agreed by the group earlier.

Iraq, Opec’s second-largest producer, is committed to the decisions and is producing no more than 4 million bpd currently, the country's Oil Minister Hayan Abdel Ghani was quoted as saying by Reuters on Monday.

Iraq's current crude oil exports fluctuate between 3.35 million and 3.4 million bpd, he added.

Opec and the International Energy Agency are expected to release their monthly oil market reports this week.

“Attention will be paid to how they will revise their demand outlook in reaction to the global developments,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“On one hand, the strong US economy and Chinese stimulus measures are positive for the demand dynamics and should support oil prices beyond the geopolitical tensions,” Ms Ozkardeskaya said.

“On the other hand, the significant retreat in global interest rate cut expectations weighs on global demand outlook."