Oil prices collapsed on Thursday in the bear market after a one – month fall that surprised suppliers and consumers.
Two benchmark oil indices, Brent Crude and West Texas Intermediate, plunged Thursday at prices 17 to 20% lower than they were a month ago.
After nine sessions downstream, the Brent Crude closed at $ 70.97 and West Texas at $ 60.67.
The sharp drop comes a week after major oil companies such as Exxon and Chevron announced earnings growth, in part due to crude oil prices, which had reached four-year highs. The companies said they were convinced that prices would remain high enough to generate profits.
Oil prices have also fallen on an abundance of oil stored in the United States. The US Energy Information Administration announced on Wednesday that oil stocks reached 432 million barrels, the seventh week of gains.
But a cascade of geopolitical events has broken the harmony of the oil world that sends 100 million barrels of global producers every day to consumers, at a price that is satisfactory to both parties.
"Supply, demand and opinion are tripartite," said Frank Verrastro, senior vice president of the Center for Strategic and International Studies. "The offer is up. Demand is down. And the feeling is more complicated about the severity of the Iranian sanctions.
President Trump's decision to ease sanctions against Iranian oil exports by allowing exemptions to eight countries has surprised markets. Demand declined slightly, causing further price erosion. "The softening of Iran's sanctions helps keep more oil on the market longer than the demand seems less robust," Verrastro said. "This has lowered prices."
Temporarily dormant oil suppliers have also been put online. Libya and Nigeria have increased production. At the same time, Saudi Arabia – under an international cloud following the assassination of journalist Jamal Khashoggi – pledged to extract more oil to stabilize global markets. The United States and Russia have also pumped oil in record amounts.
"This increase in Saudi production is being felt on the global market," said Pavel Molchanov, energy analyst at Raymond James. "Oil prices have fallen in the last month and first half of November. This should not hide the big picture. . . who tells us that the market remains under-supplied. "
Molchanov sees a long-term oil supply deficit of 1 million barrels a day. He added that the deficit would help propel prices towards $ 100 a barrel by 2020. "The overall situation is very optimistic," said Molchanov.
A month ago, a barrel of oil was $ 75 a barrel, a near optimal price that allows countries and businesses to make profits without consumers feeling fraud.
The oil industry has been working for years to get this award. Saudi Arabia, which de facto chaired the Organization of the Petroleum Exporting Countries, joined forces with Russia to limit production. This has contributed to tightening global supply and demand, as well as the loss of Venezuelan production due to domestic politics.
These efforts eroded a global oversupply that had kept prices between $ 40 and $ 50 for years and reduced OPEC revenues by several hundred billion dollars. Supply and demand had approached equilibrium this year when the issue of Iran surfaced.
A subgroup of OPEC is meeting this weekend, where it should address the question of how to reverse the price decline.
Molchanov described the decline in current prices as "dazzling blow".
"We expect global stocks to continue to decline in 2019 and 2020," which equates to four consecutive years of global inventory drawdown.