Oil prices crashed into bear market territory Thursday after a month-long plunge that has surprised suppliers and consumers.
Two oil benchmarks, Brent Crude and West Texas Intermediate, on Thursday dipped to prices that are 20 percent below what they were just a month ago.
After nine down sessions, Brent crude closed at $70.97 and West Texas was selling at $60.67 in afternoon trading.
The steep drop comes one week after major oil companies such as Exxon and Chevron reported surging earnings based, in part, on crude prices that were hitting four-year highs. Companies had said they were confident prices would remain strong enough to fuel profits going forward.
Oil prices also fell on an abundance of oil stored in the United States. The U.S. Energy Information Administration that said Wednesday oil inventories rose to 432 million barrels - the seventh week of increases.
But a cascade of geopolitical events has blown up the oil world's harmony that sends 100 million barrels a day from the world's producers to thirsty consumers at a price that is satisfactory to both sides.
"You have a trifecta of supply, demand and sentiment," said Frank Verrastro, senior vice president at the Center for Strategic and International Studies. "Supply is up. Demand is down. And sentiment is more complicated about how severe the Iranian sanctions will be."
President Donald Trump's decision to cushion the sanctions against Iranian oil exports by allowing exemptions to eight countries surprised markets. Demand has decreased slightly, further eroding prices. "Softening the Iranian sanctions keeps more oil on the market longer as demand looks to be less robust," Verrastro said. "That has pushed prices down."
Oil suppliers who were temporarily dormant also came online. Libya and Nigeria increased production. At the same time, Saudi Arabia - under an international cloud over the murder of journalist Jamal Khashoggi - had pledged to pump more oil to stabilize world markets. The U.S. and Russia have also been pumping oil at near-record amounts.
"That increase in Saudi production has been making its way onto the global market," said energy analyst Pavel Molchanov of Raymond James. "Oil prices have been in a soft patch through the past month and the first half of November. This should not obscure the big picture...which tells us the market remains undersupplied."
Molchanov sees a long-term oil supply deficit of 1 million barrels a day. He said that deficit will help propel prices toward $100 a barrel by 2020. "The big picture is very bullish," Molchanov said.
A month ago, oil was sitting at $75 per barrel, a near-optimal price that allows countries and companies to earn profits without consumers feeling gouged.
The oil industry had worked for years to get to that price. Saudi Arabia, the defacto leader of the Organization of the Petroleum Exporting Countries, teamed up with Russia to limit production. That helped tighten world supply and demand, as did the loss of Venezuelan production because of internal politics.
The efforts eroded a worldwide oversupply that had kept prices in the $40 to $50 range for years and reduced OPEC revenues by hundreds of billions of dollars. Supply and demand had approached equilibrium this year when the question of Iran surfaced.
An OPEC sub-group is meeting this weekend, where it is expected to address the issue of how to reverse the price decline.
Molchanov called the current price decline "a transitory blip."
“Our prediction is that global inventories will continue to fall in 2019 and 2020,” which would be four consecutive years of global inventory drawdowns.