Oil has fallen to an 11-year low as traders took fright at the prospect of a glut caused by fresh supplies that will outstrip global demand.
Brent crude prices dropped almost 2% to as low as $36.17 a barrel, the lowest since July 2004 and weaker than during the worst of the financial crisis. The price fell to $36.20 on Christmas Eve 2008 as the global economy headed for recession following the collapse of Lehman Brothers.
The price of Brent, the global benchmark, nudged back up to $36.42 but prices were still below those of the previous trading day.
Global production is hovering around a record high and the market faces fresh supplies from Iran as Western sanctions are lifted and Iran seeks to win back customers from Saudi Arabia and Russia. Extra supplies are also looming from the US, where stockpiles are growing as extra drilling rigs are put into operation.
Oil prices have fallen by more than two thirds since summer 2014 as demand has slowed with the global economy and higher production in the US and elsewhere has increased supplies. Prices revived partly in May but have almost halved since.
US West Texas Intermediate (WTI) futures, which show the value of the US benchmark, fell 36 cents to $34.37 a barrel, close to last week’s 2015 lows.
Moody’s, the credit rating agency,slashed its 2016 Brent crude price forecast by $10 a barrel to $43 last week, highlighting excess supply and the re-entry of Iran to the global market. Some analysts are gloomier,predicting prices falling to near $20 a barrel.
Opec said this month it had no plans to rein in production – a stance reiterated by Iraq’s oil minister at the weekend. The Saudi-dominated bloc has pumped out hundreds of thousands of unwanted crude each day in an effort to hold on to its share of the market and force US shale producers out of business.
Russian production has hit a post-Soviet record and the number of rigs deployed in the US rose for the first time in five weeks last week by 17 to 541, according to industry figures supplied by the driller Baker Hughes.
Lukman Otunuga, an analyst at currency trader FXTM, said: “Sentiment towards WTI oil received a heavy blow as this latest increase in oil rig counts, combined with the consistent rise in crude oil inventories have led to intensifying concerns over the aggressive oversupply in the markets.”
Last week’s increase in US interest rates has also put pressure on oil prices by strengthening the dollar and reducing the dollar price of commodities.