- Crude prices continue to tumble, falling to the lowest level since late September on Thursday despite broad-based US dollar weakness.
- The Commonwealth Bank says the latest selloff was driven by oversupply concerns and signs that looming US sanctions against Iran may not be as severe as first feared.
- Front-month Brent crude futures have fallen over 16% in just a month, and is quickly approaching bear market territory.
Crude prices continue to tumble, falling to the lowest level since late September on Thursday despite broad-based US dollar weakness.
Front-month Brent crude futures — the global benchmark price — slumped over 3% to $72.77 a barrel, extending its decline from recent highs struck in early October to over 16%.
That means its not only experienced a technical recession, defined as a drop of 10% or more from peak to trough, but now it’s quickly moving towards entering a bear market, defined a larger drop of 20% or greater.
Despite looming sanctions on Iran that will kick in on November 4, something that was cited as a potential catalyst to see crude spike to $100 a barrel just a few weeks ago given it will likely remove crude supply from global markets, Vivek Dhar, Mining and Energy Commodities Analyst at the Commonwealth Bank, says signs of increased output from other major crude produces contributed to the latest selloff.
“Oil prices fell sharply on oversupply fears as oil production continued to rise and as US sanctions against Iran appear to have softened,” he said.
“A Bloomberg survey estimates that OPEC oil output rose 430,000 barrels per day (b/d), or around 0.43% of global supply, to 33.3 million b/d in October, the highest level since November 2016.”
This was driven by not only supply growth from major OPEC producers and allies, but also the United States.
“The gains reflected stronger output from Libya (170,000 b/d) and Saudi Arabia (150,000 b/d),” Dhar says.
“US oil production also made headlines after it overtook Russia to become the world’s largest oil producer in August. While that title will likely only be held one month, it signals the growth in supply from the US.”
Dhar also says reports the US had agreed to a deal that will allow India and South Korea to keep importing some Iranian oil was also a contributing factor.
“That would mark a significant change in tone from the US, who had initially postured to reduce Iranian oil purchases to zero without concessions,” he said.
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