Oil declined after Saudi Arabia cut official selling prices for all regions, the latest sign that fundamentals are worsening.

West Texas Intermediate tumbled 4.1 per cent, the biggest drop in almost two months, to settle below US$71 a barrel. State producer Saudi Aramco lowered its flagship Arab Light price to Asia by $2 a barrel — more than expected — due to persistent weakness in the global market. Its pricing is the lowest since November 2021.

Prices were also pressured by a report that some shipping firms made a deal with Houthi militants to get their vessels safely through the Red Sea. Such a pact would affect a broad swathe of commodity markets as the attacks have caused shippers to re-route everything from container vessels to gas carriers. However, the existence of a deal was immediately denied by two large firms.

“Energy markets are seeing heavy selling to start the week, pushing prices back near the low end of their recent trading range and threatening a much bigger slide of technical support breaks down,” analysts at wholesale fuel distributor TACenergy wrote in a note to clients.

The Saudi price cuts reflect a lackluster end to the year for crude, which generally weakened in physical markets. As 2024 gets underway, flows from Libya have been disrupted and attacks in the Red Sea have continued, both of which could help propel oil higher. But major Wall Street have been cutting their outlooks for this year, expecting more challenges for prices.

Traders will also be monitoring the annual rebalancing of the two largest commodity indexes over the coming days. Funds tracking the Bloomberg Commodity Index and the S&P GSCI are likely to sell about $2 billion of WTI in the coming days, Citigroup Inc. estimates, as the annual realignment of their portfolios takes place.

Prices:

• WTI for February delivery fell $3.04 to settle at $70.77 a barrel in New York.
• Brent for March settlement declined $2.64 to $76.12 a barrel.