American efforts to drive down the price of oil by pressuring its Gulf allies to ramp up production helped send Brent crude below $70 a barrel on Friday, a 20 per cent drop on the four-year highs the international benchmark hit just a month ago.
The sharp sell-off, which formally pushed oil into bear market territory, has been exacerbated by a White House decision to grant waivers to US sanctions that allows Iran’s largest importers, including China, India and Japan, to continue buying crude from the Islamic Republic.
In addition, the Iraqi government is nearing a deal with Kurdish authorities that would allow 200,000-400,000 barrels a day of oil locked for months in the disputed territory of Kirkuk to reach international markets, following US pressure on Baghdad and Erbil.
The dramatic reversal in Brent comes after crude prices had topped $86 a barrel in early October, driven by the prospect that the renewed Iran sanctions and collapsing Venezuelan production would dry up international supplies.
“Oil is the most emotional market I know of, and expectations were very high for a supply deficit in the fourth quarter,” said Thibaut Remoundos, chief executive of the Commodities Trading Corporation. “Now traders are seeing a surplus emerge instead in the market, so we’re seeing a quick and brutal reaction. The sentiment pendulum is swinging back again.”
The sell-off is likely to heap pressure on Opec and its de facto leader Saudi Arabia, which is already said to be looking at the possibility of throttling back production in a bid to support prices next year having only started raising output in June.
US President Donald Trump has pressured the Saudis and other major Gulf producers to pump flat out to help replace Iranian supplies, and the falling prices will be taken as a victory in Washington.
Mr Trump has granted limited sanctions waivers to countries accounting for about 75 per cent of Iranian exports because he wanted to stop oil spiking to “$100 a barrel or $150 a barrel”.
Brent, the international benchmark, lost more than 1.5 per cent on Friday to reach a low of $69.13 a barrel, entering the commonly accepted definition of a bear market by having shed a fifth of its value from its recent peak.
US crude, which entered a bear market on Thursday, hit a fresh low of $59.26 a barrel om Friday and was down for the 10th straight day, the longest losing streak for the West Texas Intermediate benchmark on record.
The oil price slide has hammered the shares of some of the world’s biggest energy companies. In the past month BP has lost almost 15 per cent, Shell has dropped 10 per cent, while ExxonMobil has dropped 8 per cent.
Prices could continue to fall if Russia follows through with threats to boost production unless it can agree with Saudi Arabia to curtail output. Russia, which is not a member of Opec but has worked as part of an expanded “Opec+” group for the past two years, has indicated it may not yet be ready to start cutting production again, preferring to allow its companies to bring new fields online.
The Kremlin fears that higher prices have again stimulated too much production from the US, where the shale boom has roared back since prices troughed below $30 a barrel in 2016.
Saudi Arabia is said to want to at least consider cutting supplies, but may find it politically difficult given its need to patch up relations with Mr Trump following the death of dissident journalist Jamal Khashoggi, who Riyadh has admitted to killing.