Brent crude hits 10-year low

The price of oil fell more than 2 per cent in early trading on Wednesday as oil becomes so oversupplied globally that countries are running out of storage.

Oil prices have dropped around 70 per cent since July 2014 and thie week’s new low is the first time Brent crude oil has fallen below $35 a barrel in more than 10 years.

This week Brent crude fell 4.7 per cent, while US West Texas Intermediate was down 3.9 per cent.

For US oil, that was its lowest point since touching $32.40 in December 2008 during the global financial crisis.

But the price of Brent crude was seen falling to fresh 11-year lows. The last time Brent was so low was April 2004.

The oil benchmark fell lower than the previous falls seen in December, wiping out the rally seen on Monday when tensions between Saudi Arabia and Iran led to a brief rally to $39 a barrel.

However, the soured relations between the two Opec members over Saudi Arabia executing a prominent Iranian cleric for allegedly plotting against the Saudi government means the chances of Opec agreeing a cut in oil production look slim.

Adding to the continuing fall in oil prices, China depreciated the yuan on Thursday, sending regional currencies and stock markets tumbling.

Demand for crude tends to fall when the US dollar is stronger against currencies of purchasing countries and China remains the world’s biggest energy consumer.

China’s stock markets were suspended for the rest of the day, less than half an hour into trading, after falling 7 per cent and triggering a new circuit-breaking mechanism for the second time this week.

Overnight, the US Department of Energy’s weekly report showed a sharp drop in US commercial crude inventories of 5.1 million barrels to 482.3 million.

The government data also showed a gain in US crude production of 17,000 barrels a day, taking it to 9.22 million barrels a day, the fourth consecutive week of increases. There was also a rise in stockpiles at the Cushing oil hub in Oklahoma.

The US, which is thought to have among the largest storage facilities in the world, has nowhere left to keep it, according to Paul Stevens, professor emeritus at the University of Dundee and a Middle East specialist.

“Storage is pretty much full and people are already talking about buying tankers as floating storage,” he said.

“But if supply continues to outstrip demand, then the only thing that you can do with the oil is sell it, which inevitably pushes the price down.”

The huge storage overhang means that even if US production falls this year, as oil companies halt production, it will take several months to get rid of excess supplies.