Oil fell to its lowest in more than 11 years on Wednesday, down around 2 per cent, as the row between Saudi Arabia and Iran was seen extinguishing any chance of major producers cooperating to cut production in the face of mounting global over supply.
The furore over Saudi Arabia’s execution of a Shi’ite cleric has depressed the market as it put an end to speculation that OPEC members could agree on production cuts to lift prices.
“There are rising stockpiles and the tension between Iran and Saudi Arabia make any deal on production unlikely,” said Michael Hewson, head of strategy at CMC Markets.
Global Brent crude benchmarks were at $35.75 a barrel at 0856 GMT, down 67 cents or 1.9 per cent from their previous settlement, their lowest since 2004.
US crude futures were down 46 cents at $35.51 per barrel after already slipping 79 cents the previous day.
Oil has slumped from above $115 in June 2014 as shale oil from the United States has flooded the market, while falling prices have prompted some producers to maximise output to prevent income falling too rapidly and retain market share.
Adding to this oversupply, Iranian oil exports are widely expected to increase in 2016 as Western sanctions against the country for its alleged nuclear weapons programme are likely to be lifted.
“Shale production and increasing capacity from countries like Russia who need to protect revenue combined with expectations of further Iranian supply mean actual production as well as expectations of future production are rising,” Hewson said.
Still, a senior Iranian oil official said the country could moderate oil export increases once the sanctions are lifted to avoid putting prices under further pressure.
In the United States, concerns over mounting stock levels persisted, with crude inventories likely to have risen by 439,000 barrels last week.