Even with geopolitical tensions running high, the oil market has become more bearishly positioned than it's been for several years, and prices could fall another 10 percent or more.
Brent crude, the international benchmark, fell through $100 for the first time in 16 months Monday, as Chinese import growth fell unexpectedly for a second month. Besides softer demand from China, the developed world is using less oil in general as a supply glut grows in the Atlantic basin.
As a result, crude is being stored for future use, and for the first time in several years, oil is traversing the globe on tankers, waiting for a market.
"There's as much as 30 million barrels sitting on floating storage, and it's got to go somewhere at some point. That has to resolve itself," said Eric Lee, Citigroup energy analyst. Lee said his long-term forecast for Brent is $70 to $90 per barrel, and it could be starting to head in that direction.
The oil market of late summer is a far different picture from the market in June, when traders bid up crude on expectations that Islamic extremists in Iraq could disrupt supply. But that seems unlikely, with insurgents focused on areas north of the key southern productions area of Iraq. Traders have also been monitoring the situation in Ukraine, since Russia is a major energy supplier to Europe.
But while those events have provided some support, they have not fired up prices, as there has been no impact on supplies. The rising dollar has also put downward pressure on oil prices in recent weeks.
West Texas Intermediate is also under pressure, losing 63 cents Monday to $92.66 per barrel, the lowest level since Jan. 14. Part of the reason supply is so high is a big jump in U.S. oil production, up 1.3 million barrels from year-ago levels in June. The U.S. in late August was producing 8.6 million barrels a day.
John Kilduff of Again Capital said he expects to see WTI fall into the mid-$80s per barrel and then possibly below $80.
The last time oil prices were in as bearish a trend—2008-2009—"we didn't have this Atlantic basin glut. We didn't have a lot in storage. This is a global phenomena. You look at the (futures curve). The Dubai curve. They're all in contango. If you've got an empty tanker, you're stuffing it with oil to lock in this return," Kilduff said.
Contango is when futures contracts in future months are priced higher than the near term, and now that signals a supply glut. While not yet in contango, analysts say WTI could be heading there as well.
"Brent prices have been pretty stable around $110," said Lee. "But below that calm surface, a lot has been happening—Iranian sanctions, Libya ... Russia, Ukraine, ongoing issues in Nigeria and now Iraq. ... The question is does it stay at this level without a supply disruption."
So far OPEC is pumping 30 million barrels a day, and Saudi Arabia. the world's swing producer, has not said it would step back from its 10 million per day production level, analysts note.
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"They've been quiet so far," Lee said. "It's been the fourth week of the OPEC basket being below $100. ... First there was a dismissal of shale," he said, adding OPEC then noted U.S. shale drilling would help as an additional source for the world. "Now it's going to start possibly looking less friendly. We'll see what the Saudis do. For now, it looks like they're willing to let it go."
Kilduff said the Saudis could easily change the outlook for oil. "If the Saudis don't respond, the price drop is going to be fairly swift," he said. Kilduff expects Brent to quickly head to about $96, but it could bounce at that level before falling into the fourth quarter of the year, when it could break below $90.
Lee said there could be more pressure on prices when U.S. oil demand drops in the fourth quarter, as it always does due to less refinery demand.
There could also be another surge of North American crude onto the global market by the end of the year, with as much as 500,000 barrels a day flowing on the soon-to-open Enbridge Flanagan South pipeline, which will help transport oil from the Canadian sands to the Gulf Coast, he said.
Lee said North American crude has nearly made up for supply disruptions. "It's one of those mirror images. Since January, 2011, the amount of oil (off the market) has grown from a half a million to 3.5 million and over the same period, Canadian and U.S. oil production has grown by the same amount," he said.
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"The industry is very inefficient," said Andrew Lipow, president of Lipow Oil Associates. "Oil is traveling in different directions. We're shipping stuff from North America to Europe and European (North Sea) oil is flowing to Asia."
Lipow does not agree with some of the weaker price forecasts. "Certainly, WTI prices could easily hit $90 over the next couple of weeks as refiners go into maintenance," he said.
"World oil demand is still quite good and world oil demand will pick up as we get to November and December," Lipow said. "It's not as good as expected."
Meanwhile, U.S. crude has displaced some African crude sold into the Gulf Coast of the U.S., and Libya has resumed some production—estimated at about 750,000 barrels a day.
"They're trying to find places to sell their oil. That's indicative of an industry that has plenty of oil around looking for places to go. You have ships passing in the night," said Lipow.
—By CNBC's Patti Domm