The sell-off began early in the session after Libya's National Oil Company said it would reopen ports which had been closed since late June. This raised the possibility that China would retaliate by slapping a tariff on imports of US crude oil.
Washington had previously said countries must halt all imports of Iranian oil from November 4 or face USA financial restrictions, with no exemptions. However, Iran exports might squeeze further if United States takes more aggressive stance on sanctions, they said.
Iran has already seen its shipments to Europe fall nearly 50 percent as US penalties deter buyers, and the country's total exports could slump even more, according to the agency, which advises most of the world's major economies. So the Pompeo announcement came as a surprise for those holding long futures contracts.
The market shrugged off bullish USA government data showing crude stockpiles slumped by almost 13 million barrels last week, the biggest slide in almost two years.
Moving forward, we have to consider several factors.
On Tuesday, the USA unveiled a list of $200bn worth of products to be hit with 10% tariffs, prompting China to vow counter-measures.
Secondly, the recent rally was being supported partly from a drop in Libyan output.
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Raising output further could shrink the country's spare production capacity - the crude left idle for emergencies - to "an unprecedented level below 1 million barrels a day", the IEA predicted.
Iraq, which is also chronically restive, does not have spare capacity either, leaving most of the job of hiking OPEC production to Saudi Arabia, the United Arab Emirates and Kuwait.
Crude oil prices also fell as the USA dollar rose on Wednesday's surprisingly strong US inflation report, which increased prospects the Federal Reserve will raise interest rates twice more this year.
"We see no sign of higher production from elsewhere that might ease fears of market tightness", the IEA said. Additionally, at some time in the near future, the Canadian pipeline problem will be fixed and the supply disruption over.
World markets remain vulnerable as the Trump administration seeks to choke off Iranian crude exports after the president quit an accord that polices the Islamic Republic's nuclear program.
According to the September WTI chart, the trend is down according to the daily chart, putting the market in a position to test $67.99 to $66.81.