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Here’s why Brent crude oil price is plunging amid geopolitical risks

By: Invezz

Brent and West Texas Intermediate (WTI) crude oil prices crashed hard last week even as the Red Sea attacks jumped. Brent crude crashed for three straight days and settled at $77.40, dropping by over 8% from its highest level this year. Similarly, WTI, the American benchmark, plunged to $72, down by 23% since the Hamas war started.

Global oil production is soaring

The price of crude oil continued crashing this week even as the US and UK continued their bombings in Yemen. The two countries continued bombing Yemen as they sought to prevent more attacks at the Red Sea. These attacks have led more oil traders, including Shell, to stop transiting through the Red Sea.

In theory, a crisis in the Red Sea would be negative for oil prices since the region is one of the biggest oil producers in the world. Most oil also pass through the Red Sea, making it an important place in oil trade.

The main reason for the oil price action is that we are now living in an era of abundance as countries boost their production. The US is leading this charge, as evidenced by the strong results by companies like ExxonMobil and Chevron.

Exxon and Chevron, the two biggest oil companies, are pumping millions of barrels every day. While most of this oil is being used in the US, others is going to other countries, including Nigeria. The most recent data shows that the US is producing over 13 million barrels per day and analysts believe it will get to 14 million soon. 

Other countries are also boosting their oil production. Canada is nearing over 5 million barrels per day. Guyana and Venezuela are also producing vast amounts of oil while Saudi Arabia has announced measures to reduce prices in a bid to boost market share.

This surge in oil production is happening at a time when oil demand is not growing as fast. OPEC believes that the daily demand will rise by 2.25 million barrels per day this year and 1.8 million in 2025. IEA expects demand will slow to 1.2 million barrels, citing economic growth.

Watch here: crude oil price forecast

Brent chart by TradingView

Turning to the daily chart, we see that the price of crude oil continued falling last week. This movement means that Brent found no buyers above $83.88, where it struggled to move above in January.

Brent has constantly remained below the 50-day moving average while the Relative Strength Index (RSI) has drifted downwards. Therefore, the outlook for Brent is still bearish, with the next point to watch being the December low at $72.35.

The post Here’s why Brent crude oil price is plunging amid geopolitical risks appeared first on Invezz

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