For months, there has been a lot of talk about the fundamental factors that support the price of a barrel and shake it in multiple directions. Right now, the commodity is in a delicate dance between an overcrowded market, facing huge U.S. injection and weaker-than-expected demand, and geopolitical fears in the Middle East. The recent fear of an Israeli attack on Iranian oil infrastructure has inflamed the market’s spirits, even if it seems to have calmed down in recent days. However, after sharp declines in recent days, crude oil finds itself in a technical abyss. ANDThe pulse of investors accelerates as the barrel gets closer up to a limit point which would open the door to accelerated collapse: the 70 dollars.
This year, it only crossed this barrier very briefly at the beginning of October, touching $69.2 on weak data from China. This preceded a rebound in the Middle East “fire.” The only time in recent years it traded below these levels was in the heat of the moment, in 2020 and 2021, when the pandemic brought global activity to a halt and, Consequently, the demand for crude oil fell to its minimum. However, crude oil has still found this barrier insurmountable at $70.
The barrel of Brent crude oil, benchmark in Europe, is based on a key support that experts see as the last barrier before experiencing an even greater decline. From the financial portal Marketwatch they explain in an analysis that over the last two years the price of Brent crude oil has largely been limited to a price range that oscillates between 70 and 100 dollars. But in early August, Brent significantly exceeded its 200-week moving average. This break of a very long-term moving average has a bearish implication that defines the direction of the long-term trend of crude oil, which is downward, as explained by the North American portal.
Now, crude oil faces an even more complex scenario: “Closing below the 200-week moving average and breaking the support of 68 dollars would trigger a strong sell-off and again project a decline to 55-60 dollars”, emphasize the analysts of the American media.
Joan Cabrero, advisor to Ecotrader, elEconomista’s investment portal, points out that crude oil could see a significant decline in the event of a downward break from the sideways market it is currently in. A sideways market occurs when a price moves up and down within a price channel. Right now, Brent appears to be trading (like it’s in a cage) between 69 and 80 dollars. The break of this channel will determine the evolution of the prices of “black gold” in the weeks and probably the months to come.
Cabrero explains that if Brent ends up losing the $66 zone, the basis of another longer-term channel, oil could correct up to $55 per barrel.
For the moment, Brent is taking a break today by rebounding 1.22% after experiencing one of the worst weeks of the entire year. The price of a barrel collapsed by 7.57%, only being exceeded by 10.27% at the beginning of September. This poor performance is due to the sudden turnaround in the situation in the Middle East. In recent days, Benjamin Netanyahu himself has publicly expressed his desire not to attack Iranian oil infrastructure. It was the great fear that had caused powerful advances since mid-October.
A market full of crude oil
From a fundamental perspective, the reality is that the market is now facing significant production. In America, several countries stand out as significant and growing oil producers, playing a key role in global supply. According to the latest reports from the International Energy Agency (IEA) and Bloomberg, the United States leads production in the region with a daily average of more than 13.2 million barrels per day (b/d), reaching a record level in 2023.
This increase consolidated the country as the world’s largest oil producer, driven by the shale oil boom. This level of production has had a significant impact on global supply, helping to offset deficits in other producing countries. Canada, for its part, is producing more than 4 million barrels of crude oil daily.
Brazil is another giant of oil production in America, with a approximate production of 3.6 million barrels per day. Thanks to its significant deep-water deposits, the country has maintained sustained growth over the past decade, allowing it to position itself as the second largest producer in the region. The development of pre-salt deposits has been essential for Brazil to remain competitive and approach its historical production maximums.
The United States, Brazil, Canada, Mexico and now Guyana play a crucial role.
Mexico, meanwhile, produces around 1.9 million barrels per day, according to the latest IEA data. Even if it is far from being its peak production in recent decadesstate-owned Pemex continues to be a relevant player in the market, especially in a context where proven reserves are running out and new deepwater developments are slow to consolidate.
An interesting case is that of Guyana, which has quickly established itself as an important producer, with a production of more than 550,000 barrels per day in 2023, already now producing more than 600,000 barrels per day. Recent deep-water discoveries have made the small country one of the fastest growing hotspots in the region, attracting the attention of international investors and contributing to the world’s crude oil supply.
Regionally, these American countries play a crucial role in global oil supply, with the United States, Brazil, Canada, Mexico and now Guyana as major players. Overall, Its production influences the stability of international prices and provides a counterweight to fluctuations in supply from other producing countries outside the region, notably those in OPEC+. It remains to be seen whether the market will eventually give in to the push of these new oil giants and manage to break the key barrier or if, like so many other times, the $70 shield will manage to save Brent from a widespread decline.
