The price of Brent crude oil fell below the $70-a-barrel mark today for the first time in seven months, moving to the brink of bear-market territory.
As of 15:57 (MSK), Brent crude reached $69.87 a barrel on ICE Futures Europe. Brent oil was down more than 19% from its recent October peak and 3% since the start of the week.
The Energy Information Administration said on Wednesday that U.S. production climbed by 400,000 barrels a day to 11.6 million barrels a day for the week ended Nov. 2. The EIA report also revealed a seventh straight weekly rise in U.S. crude supplies, up 5.8 million barrels last week.
The updated forecast from the EIA raised the 2018 and 2019 outlooks on domestic crude production. For 2019, the government expects a production average of 12.06 million barrels a day, MarketWatch reported.
Overall, crude output in Saudi Arabia, Russia and the U.S. had climbed ahead of U.S. sanctions on the Iranian energy sector, which were expected to contribute to tighter global oil supplies. The sanctions began earlier this week, but the U.S. granted 8 countries temporary waivers - allowing them to continue buying Iranian oil.
OPEC members will meet in Abu Dhabi over the weekend ahead of a key meeting on December 6 in Vienna.
Iran sanctions had previously served to boost oil prices, with an October swoon serving as a reflection that increased output by Saudi Arabia and Russia would largely offset the lost barrels. The U.S. announcement of waivers only added to worries about oversupply
Head of the State Duma’s Committee for Financial Markets Anatoly Aksakov, speaking with Vestnik Kavkaza, noted that oil prices are falling due to an increase in oil production by Saudi Arabia. "The United States exerted unprecedented pressure on Riyadh, forcing it to increase oil production. As the Saudis began to extract oil much more than it was determined in the OPEC+ framework, supply began to exceed demand, as a result, oil is getting cheaper," he said.
The politician expects that in the near future, oil prices will continue to decline. "I think that the limiter of such a price is a threshold of $55 per barrel of Brent oil. Everything now rests on supply and demand, and it will depend on them how much oil production will increase in the future. Now shale oil is actively produced again because of prices above $70 per barrel, but it is worth expecting that if the quotes fall below $60 per barrel, its production will no longer be profitable, and then prices will stop their decline,” Anatoly Aksakov explained.
The executive vice-president of NewTech Services, professor of the Gubkin Russian State University of Oil and Gas, Valery Bessel, saw a speculative component in the decline of Brent oil below $70 per barrel. “Oil prices will rise. We cannot predict how Iran will behave if it is severely cornered — if it blocks the Strait of Hormuz, the entire transportation of oil from the Persian Gulf will stop, which means war and a surge in oil prices. The pressure on Iran from the United States will not disappear, because they are trying to squeeze it out of the hydrocarbon market as a competitor," he said.
"Now, unfortunately, oil prices raise only due to different informational reasons, not due to objective factors of economic growth. The world economy is growing, growth is observed in all major countries, but not as fast as expected - while informational reasons are only multiplying. In the long term, the loss of Iranian oil will affect the balance of supply and demand, as demand will remain at the same level, but Iranian supply will leave the market. As a result, oil prices will gradually rise to recent levels," Valery Bessel concluded.
