Talk of oil prices spiking to $100 has been replaced by another discussion: How low can crude futures go?

The oil market has undergone a spectacular reversal, even against a backdrop of looming U.S. sanctions on Iran, OPEC's third-largest crude producer, and rising tensions between Washington and Saudi Arabia, the world's biggest oil exporter.

U.S. crude futures fell to a nearly five-week low of $68.47 on Thursday, plunging more than $8 a barrel from this month's four-year high at $76.90. That's a remarkable 11 percent plunge from peak to trough over just two weeks.

 Meanwhile, Brent crude bottomed out at $78.69 a barrel on Thursday, down $8, or 9.3 percent, from its four-year high at $86.74 on Oct. 3.

There are three reasons oil prices have fallen so far so fast, said Matt Smith, director of commodity research at tanker-tracking firm ClipperData.

First, the supply of oil held in U.S. storage tanks has risen sharply over the last four weeks. U.S. crude stockpiles are up by 22.3 million barrels through last week. That's the biggest increase over that four-week period since 2015, when storage levels were rising toward all-time highs in a heavily oversupplied market.

Second, Brent crude's spike above $86 a barrel two weeks ago sparked fears that the high cost of oil would start to erode demand for the commodity. In recent weeks, OPEC and the International Energy Agency have knocked down their forecasts for growth in oil demand in light of a weaker outlook for global economic gains.

Last, crude got swept up in a sell-off last week that saw investors dump risk assets. During the two-day stock market rout alone, crude futures fell by more than 5 percent.

In Smith's view, the rally at the start of October largely boiled down to fear over the impact of U.S. sanctions on Iran, which come into full force on Nov. 4. The market remains uncertain about the ability of producers such as Saudi Arabia and Russia to fill the gap left by the loss of roughly 1 million barrels a day of Iranian exports.

"When those sanctions kick in in early November that's really when we'll see those exports really dropping off," Smith told CNBC's "Squawk Box" on Thursday.

"So that's really going to kick in, and that's why we got ahead of ourselves really in terms of pricing in that fear."

Shrugging off Saudi tensions

So far, the geopolitical turmoil over Saudi Arabia's alleged role in the suspected slaying of Saudi journalist and U.S. resident Jamal Khashoggi has not had much impact on the market. American lawmakers have said Saudi Arabia could face sanctions over the incident, and on Thursday U.S. Treasury Secretary Steven Mnuchin announced he is pulling out of a high-profile Saudi investment conference.

President Donald Trump is depending on Saudi Arabia to hike its oil output to offset his Iran policy's inflationary pressure on oil prices. The kingdom is one of the few nations with enough spare capacity to tame the cost of crude.

Despite veiled threats from Saudi Arabia, analysts say the market is deeply skeptical that Riyadh would cut output and push oil prices higher to settle a political score.

"That would be such a departure from their stated policy and stance towards the oil market. It's so much against their interest to do it," said John Kilduff, founding partner at energy hedge fund Again Capital.

While Saudi Arabia issued a forceful statement threatening retaliation against sanctions over the weekend, it has since "more than backed away" from that posturing, said Kilduff. The question now, he says, is whether the Trump administration and its Saudi allies can distance Crown Prince Mohammed bin Salman from Khashoggi's disappearance.

"The over/under is does [Mohammed bin Salman] stay or not? As long as we're sort of working through this, it's not going to be an oil shock, I can tell you that," he told CNBC's "Squawk Box" on Thursday.

Except for Canada, no country sends more oil to the United States than Saudi Arabia, Smith noted, and Saudi oil giant Aramco owns the largest refinery on the U.S. Gulf Coast. Further, U.S. lawmakers could design sanctions so that they do not impact energy flows, he said.

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