Monday’s trading delivered a rude awakening for energy investors as U.S. oil futures experienced their most substantial single-day decline since November. The culprit? Saudi Arabia’s decision to slash its crude selling prices, reigniting fears of an over-supplied market combined with weakening demand. Energy (NYSEARCA:XLE) was the sole S&P sector to conclude the day in the red, finishing -1.2%.

Saudi Aramco declared a reduction in its official selling price for crude to all regions starting February, including a significant cut for its flagship Arab light, surpassing local benchmarks by up to $2 per barrel.

Front-month Nymex crude (CL1:COM) for February delivery plummeted -4.1% to $70.77 per barrel, marking its most substantial drop since November 16. Meanwhile, front-month March Brent crude (CO1:COM) concluded -3.3% lower at $76.12 per barrel, its most considerable loss since December 12.

The top decliners in the oil and gas group on Monday included Schlumberger (SLB) -2.9%, Baker Hughes (BKR) -2.9%, Marathon Oil (MRO) -2.6%, EOG Resources (EOG) -2.1%, Halliburton (HAL) -2.1%, APA Corp. (APA) -1.8%, ConocoPhillips (COP) -1.7%, Targa Resources (TRGP) -1.7%, Exxon Mobil (XOM) -1.6%.

Analysts from Ritterbusch suggested that Aramco’s larger-than-anticipated reductions in official selling prices might be an effort to recoup some of the market share lost last year due to OPEC+ production cuts, of which Saudi Arabia was the most significant contributor.

According to Ritterbusch, “the sharp cut in OSPs also implies reduced revenue, which will continue to test the Saudis’ resolve in spearheading reduced OPEC+ production, a measure that has failed to offer significant oil price support thus far.”

Phil Flynn of The Price Futures Group similarly noted, “While it is possible that the price reduction was to maintain market share in the face of production cuts, the market is taking it as a clear sign that the economy is slowing.”

WTI and Brent crude concluded the first week of 2024 with over 2% gains due to escalating tensions in the Middle East. However, as Phil Flynn highlighted, “the market seems to feel that geopolitical risk will not impact supply and if it does, demand is weak so it will not matter.”

The geopolitical situation in the Middle East appears to be deteriorating, with the killing of a Hezbollah commander in Lebanon on Monday in an apparent Israeli airstrike.