In a move that has sent shockwaves through the oil market, Saudi Arabia has drastically reduced oil prices, leading to a significant increase in short positions in both Brent crude and West Texas Intermediate crude.
The state-operated oil powerhouse, Saudi Aramco, has slashed the February official selling price of its Arab Light Crude to a two-year low for Asian buyers.
Major commodities funds are expected to shed U.S. crude futures contracts in a new-year rebalancing move. Following the Bloomberg Commodity Index and the S&P GSCI, these funds could potentially offload roughly $2 billion worth of futures contracts this week, according to a Citigroup estimate cited by Bloomberg.
Analysts speculate that the Saudi price cut could signal a decrease in crude demand or an effort to undermine the West’s growing crude production with a “market share war.”
This development sparked a 3% dip in oil prices on Monday. Brent crude dropped to roughly $76 a barrel, while West Texas Intermediate crude fell to about $71 a barrel.
meanwhile, Wall Street kicked off the week on a positive note, marking a turnaround from the challenging start to the year. All major stock indices showed gains, except for the Dow Jones, as financial conditions showed signs of improvement.
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