It comes as concern grows that Iran could restart oil exports
flooding a market already under intense pressure from global oversupply
and weak demand.
Brent crude fell more than 4.5% to $29.46 and US West Texas intermediate oil fell to $29.47
Iran
could restart exports if the International Atomic Energy Agency (IAEA)
reports it has complied with measures to curb its nuclear programme.
The IAEA could publish its report as early as Friday, following a meeting in Vienna.
Iran has the fourth largest proven oil reserves in the world, according to the US Energy
Information Agency
and any additional oil would add to the 1 million barrels a day of over
supply that has led to a more than 70% collapse in oil prices since the
middle of 2014.
"With sanctions on Iran likely to be lifted, more oil is flooding the markets," Commerzbank analysts wrote in a note.
"Although the additional supply had been imminent for some time, current sentiment ought to send prices further south."
Commerzbank
cut its 2016 forecast for oil prices, changing its year-end
expectation for Brent to $50 per barrel, down from a previous forecast
of $63.
Iran's oil exports were already on target to hit a
nine-month high in January, with 1.10 million barrels a day of crude, to
load.
Why is the oil price so low?
Oil
prices have fallen by about 70% in the past 18 months as supply has
outstripped demand. The demand for oil from China has fallen as its
economic growth has slowed. Meanwhile supply has increased, partly due
to the rise of US shale oil. In addition, the world's largest exporter
of oil, Saudi Arabia, has refused to cut production - something it has
done previously to support oil prices. Analysts estimate that about one
million barrels of oil are being produced above demand every day.
Who benefits?
Consumers
and some businesses have benefitted from lower oil prices. UK motorists
have seen the price of petrol and diesel fall from about £1.40 a litre
18 months ago to about £1 now. Transport operators and airlines should
also be benefitting from cheaper fuel. The lower fuel costs have also
helped to keep inflation close to zero in many countries.
Who suffers?
Oil
exporting nations that rely on a higher oil price to break even are
suffering, such as Russia, Nigeria and Venezuela, as are oil firms
generally. There have been thousands of job losses in the North Sea's
oil industry. Investment in exploration has also been cut by big oil
firms such as Shell, BP, Total and Exxon Mobil.
Iran
is expected to target India, Asia's fastest-growing major oil market,
as well as its old partners in Europe, such as Greece, with the
increased exports.
It is the wrong time for Iran to be returning
to the oil market, both for the market and likely also for Iran,"
brokers Phillip Futures said in a note on Friday.
The continuing collapse in oil prices has also added to pressure on
oil producing nations that rely on exports including Algeria, Venezuela,
Nigeria and Russia.
Earlier this week, Russian prime minister Dmitry Medvedev warned tumbling oil prices could force his country to revise its 2016 budget.
He said that the country must be prepared for a "worst-case" economic scenario if the price continued to fall.
Taxes from oil and gas generates about half the Russian government's revenue.
The
2016 federal budget that was approved in October was based on an oil
price of $50 a barrel in 2016 - a figure President Vladimir Putin has
since described as "unrealistic".
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