LONDON —

Oil prices have fallen sharply since passing a cyclical peak at the start of October, amid surging production and mounting concerns about the state of the global economy and the outlook for consumption growth in 2019.

Front-month Brent futures prices have dropped by more than $17 per barrel (20 percent) over the last five weeks while WTI futures prices have declined for a record 11 days in a row.

OPEC and its allies, who were talking about increasing production as recently as October to offset the impact of sanctions on Iran, are now openly discussing the need for output cuts to avert a build-up in stocks.

Some commentators have expressed surprise at the rapid turn round in the market outlook for under- to oversupply but in fact such shifts have been fairly common.

The prospective reimposition of sanctions on Iran masked a big shift in the market outlook in recent months as non-OPEC oil production accelerated while consumption growth showed signs of slowing.

Once the threat of severe sanctions was lifted, at least for the time being, the market refocused on the deteriorating supply-demand background and prices have adjusted downwards.

The reimposition of sanctions on Iran played the same role in 2018 as the disruption of Libya›s oil exports and advance of Islamist fighters across northern Iraq played in 2014.

— Reuters

The initial risk of tough sanctions on Iran kept oil prices elevated even as surging U.S. shale production and sluggish growth in oil consumption pointed towards an emerging surplus.

In the event, the United States offered more generous waivers to enable Iran›s customers to continue purchasing crude, backing away from an earlier strategy of cutting Iran›s exports to zero.

Much the same thing happened in June 2014, when Islamist fighters failed to capture the oilfields around Kirkuk and Iraqi Kurdistan or advance towards the oilfields in the south, contrary to earlier fears.

With the resumption of oil exports from Libya and the continuation of shipments from Iraq, oil traders turned their attention to the accelerating shale production and fading consumption growth in the second half of 2014.

U.S. crude and condensates production surged by 2.1 million barrels per day (bpd) in the 12 months to August 2018, even more than the 1.5 million bpd increase in the 12 months to June 2014.

OPEC is again forecasting that non-OPEC production increases will outstrip global consumption growth in 2019, reducing the need for its own oil, a re-run of conditions in the middle of 2014. — Reuters