Crude oil fall enters bear market territory
Oil prices slid into bear market territory on Friday, with crude dropping below $70 per barrel for the first time in seven months.
The price of Brent crude futures fell 1.2% on the day to $69.82 per barrel by early afternoon on Friday, down almost 20% from four-year peaks above $86 early last month and on course for a fifth weekly drop. The cost of a barrel of West Texas Intermediate was down 1.2% to $59.9, having neared $77 in October.
"Oil has entered a grizzly bear market as the effect of Iran sanctions become better understood; critically it seems the impact on supply is far less than feared, in no small part to waivers," said analyst Neil Wilson at Markets.com.
This was despite the US warning other countries not to allow Iranian oil tankers into their territorial waters or ports, saying such access may run afoul of economic sanctions on the Persian nation.
The State Department has reminded the global shipping and insurance industries that Iranian tankers will incur penalties as part of the Trump administration's "maximum pressure campaign" on Iran.
However, despite US economic sanctions against Iran being reinstated on Monday, eight countries were given exemptions, so the impact has not yet been great.
Also this week there was an unexpectedly large build in US oil stockpiles, while there also emerged a report from Russia's TASS newswire that officials from Moscow and Riyadh had broached the possibility of output cuts.
Last month's Oil Market Report from Opec saw the powerful production cartel revise down its global oil demand growth to 1.54m barrels per day for the year, down by 80,000 bpd from the September guidance.
"Oil’s set for its longest stretch of declines on record after entering a bear market, with investors awaiting a weekend meeting of OPEC and its allies to discuss output strategy," said broker SP Angel on Friday.
Analysts noted that front-month WTI futures are headed for a 4% decline on the week, which would be its fifth consecutive decrease with the total volume traded 35% above the 100-day average.
With the waivers making sanction "something of a red herring", Wilson noted that the markets often ‘buy the rumour, sell the fact’, with a sizeable risk premium likely to have previously been building up on oil due to the unknown quantity of Iran sanctions.
With demand growth seen falling and if global growth has peaked, with rates rising in the US, then demand could well slow, said Wilson.
"The biggest risk for oil bulls is a slowdown in global growth, particularly as trade wars seem to be raging as strong as ever. Moreover equity market turmoil we have lately witnesses is indicative of a slowdown ahead. As discussed earlier this year, not enough focus was being placed in the demand side of the equation," he said, adding that Opec's semi-annual meeting on 6 December will need to mull further curbs on output to stem the decline, or stick to the script.