Oil price hits new 11-year lows amid global supply glut

The price of Brent crude slipped below $36.20 just before 5am in London, breaching an intraday low that has stood since December 2008, reports The Times.

With the price dropping to $36.17 a barrel it was trading at its cheapest since July 2004. A drop of 1.9 per cent since Friday’s close, adding to a 2.8 per cent drop last week.

The oil market has been swamped since Saudi Arabia decided not to cut supply in the autumn of 2014. Fears of further oversupply have been exacerbated by Opec, the oil producers cartel, effectively abandoning production limits at its December 4 meeting and a historic decision by the US Congress last Friday to end a 40-year-old oil export ban.

Brent staged a brief rally in the spring with the price per barrel rising to a high of $67.77 on May 7, but since then it has slipped by 46 per cent. The story is a familiar one to traders – too much oil and not enough demand.

“There hasn’t been any significant signs of a pick-up in demand and we haven’t seen any meaningful cuts to production,” Ric Spooner, a chief analyst at CMC Markets in Sydney told Bloomberg.

“Nothing has really changed in the oil market over the past couple of months apart from the price.”

With global production already near record highs the return of Iranian oil to the market as sanctions lift in the coming year threatens to drive the price lower still.

“The hope for a rebalancing in 2016 continues to suffer serious setbacks,” analysts at US investment bank Morgan Stanley said. It projected Iran could add as much as 500,000 barrels per day in the first quarter of the new year.

US production is also proving “more resilient” than most models predicted, Morgan Stanley said. It was thought Opec had allowed prices to crash to drive higher-cost US producers out of business, helping it maintain market share.

However, the number of rigs drilling for oil in the US rose by 17 to 541 last week, the biggest rise since July.