Brent crude slid 1.09%, or 86 cents, to $77.90 a barrel by 0344 GMT, while U.S. West Texas Intermediate crude futures declined 1.15%, or 85 cents, to $72.96 a barrel

Oil prices dropped by more than 1% on Monday on sharp price cuts by top exporter Saudi Arabia and an increase in OPEC output, offsetting concerns about worsening geopolitical tension in the Middle East.

Brent crude slid 1.09%, or 86 cents, to $77.90 a barrel by 0344 GMT, while U.S. West Texas Intermediate crude futures declined 1.15%, or 85 cents, to $72.96 a barrel.

Saudi Aramco slashing its February OSPs bolsters the weak demand narrative, said Vandana Hari, founder of Vanda Insights.

Rising supply and competition with rival producers prompted Saudi Arabia on Sunday to pare the February official selling price (OSP) of its flagship Arab Light crude to Asia to the lowest level in 27 months.

If we were just to focus on the fundamentals including, higher inventories, higher OPEC/non-OPEC production, and a lower-than-expected Saudi OSP, it would be impossible to be anything other than bearish crude oil, IG analyst Tony Sycamore said.

However, that does not take into account the fact that geopolitical tensions in the Middle East are undeniably increasing again which will mean limited downside, he said.

Both contracts jumped more than 2% in the first week of this year after investors returned from holidays to focus on geopolitical risk in the Middle East following attacks on ships in the Red Sea.

The Red Sea tensions are the only counterweight, albeit a comparatively weak and intermittent one, to crude prices succumbing to bearishness over expectations of softening global demand and rising inventories, said Hari.

Separately, in the U.S., oil drilling rigs were up by one at 501 last week, Baker Hughes said in its weekly report.