Crude oil price has been under intense pressure in 2023 even as the OPEC+ cartel continued slashing output. Brent, the global benchmark, was trading at $76.90 on Monday, much lower than the year-to-date high of $96.10. It remains much lower than last year’s high of $138.
Similarly, West Texas Intermediate (WTI), the American benchmark, has dropped to $72, which is lower than the YTD high of $94.85. Other oil benchmarks like Russian urals and Dubai have also retreated recently.
US crude oil productionThe main reason why crude oil prices have crashed in 2023 is that American shale producers are pumping record levels every day. As a result, this increased production has helped to offset the supply cuts among OPEC+ members like Saudi Arabia and Russia.
Data shows that America’s oil producers are now pumping over 13.3 million barrels of oil per day, up from the estimated 12.5 million barrels. This increase in production will likely continue increasing as the industry continues to gain market share.
The OPEC+ and US dynamics send reminders of what happened a few years ago as the OPEC+ was considering measures to cap the growth of America’s shale producers. At the time, the cartel boosted oil production in a bid to take more firms away from the market. It did not succeed.
Today, most American oil companies have spectacular balance sheets and are swimming in cash. As a result, companies like Exxon, Chevron, and Occidental are spending billions of dollars in acquisitions.
There are other reasons why crude oil prices is crashing. Heavily sanctioned Russia has continued shipping oil to Asian countries like India and China. Its refined petroleum products are also finding their way in western countries, including the US.
Additionally, some countries like Venezuela and Guyana have boosted their oil production. Chevron is exporting thousands of barrels from Venezuela and it plans to increase this by 65k barrels per day in 2024.
Similarly, Guyana’s production is expected to reach 620k barrels per day in 2024 and over 1.2 million in 2028. Other countries like Namibia and Uganda are expected to start shipping oil in the next few years.
Therefore, these developments could push OPEC+ to make more supply cuts in a bid to push prices higher. This is difficult, as we saw earlier this month as members failed to reach an agreement on cuts.
There is hope that oil prices will bounce back though since the Chinese economy is seeing signs of bottoming. Data published last week showed that industrial production and retail sales recovered in November.
Brent crude oil prices outlook
Turning to the daily chart, we see that Brent crude oil price has been in a downtrend in the past few weeks. Along the way, the price remains below the 50-day and 25-day Exponential Moving Averages (EMA). It has also formed a descending channel pattern. Therefore, Brent will likely resume the downward trend as sellers target the key support at $70.26, the lowest swing in May. A break below that support will see it drop to the psychological support at $65. This decline is in line with my previous oil forecast.
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