The strong upward trend of the oil markets over two years is facing the strongest test in the coming months as a flood of supplies and growing fears of economic weakness are disrupting global demand.
According to Reuters, the price of crude oil exceeded 75 and 85 dollars per barrel a month ago, however, US crude futures and Brent are currently facing an almost unsustainable sell-off.
For some time, prices have been supported by hopes that the re-imposition of US sanctions on Iran would lead to market exits.
But last week, the world's top three producers - Russia, Saudi Arabia and the United States - indicated that they were pumping at record levels or near record levels.
The United States said that it would "allow temporary exemptions to allow customers to continue importing Iranian oil, thereby weakening the threat of a supply crisis."
These factors, along with the recent weak economic data set from China and other emerging markets, have turned the course of the conversation back to fears of inflation and pushed US crude futures to low levels since April.
The upward trend, which has found steady support during its minor downtrends, was disrupted.
The US crude futures curve has for several months pointed to tight supply prospects, but futures are predicting that investors believe oil could overwhelm markets in the coming months.
Jim Ritterbusch, President of Ritterbusch & Associates, thinks "The extent of the recent decline indicates that global demand is weaker than expected due to the issue of fees, especially between the United States and China."
The market has also seen speculative exits. In the past two weeks, net bets have fallen on price rises to the lowest level. In more than a year and with accelerated sales on Thursday, the West Texas Intermediate crude oil drop for $ 65 a barrel, a level that has remained steadfast in previous waves of selling during the summer and fall.
The oil market rose in anticipation of a renewed US sanctions on Iran this week and concerns that supplies from producers such as Saudi Arabia may not suffice to compensate for the shortfall.
However, the US government on Friday decided to allow a number of countries, including South Korea and Turkey, to import the Iranian crude temporarily after the sanctions came into effect today, avoiding the US threat of economic sanctions.
Though, some analysts believe that the current decline is too much and that it happened very quickly, and OPEC's main producers will not be able to add supplies when needed, especially that the threat still lingers in production in Iran, Venezuela and Libya.
Analysts in Bernstein, explained, "A million barrels per day from Iran, and even greater declines in Venezuela, with the geopolitical turmoil in Libya and Nigeria could easily wipe out the few remaining reserves we have."
OPEC output led by Saudi Arabia rose to levels that have not seen in two years. US production hit a record 11.3 million bpd in August. Russia's output rose to 11.4 million bpd, the highest level of the post-Soviet era.
Fouad Rizk Zadeh, an analyst at Forex.com, said, "The main range to be followed for the US crude is between 64.45 and 64.80 dollars where prices have been supported in the past." "If oil falls below this level, the decline will be easier than the rise," he added, "For Brent, the range should be between $ 69.50 and $ 69.60 a barrel. If it falls, we may see a much larger correction."
