The price of oil has fallen to its lowest point in over 11 years, down two percent and even dropping below $35 a barrel at 10.30am GMT (5.30am ET). Investors are reacting to the on-going row between Saudi Arabia and Iran, which has crushed any hopes that OPEC members will agree to a reduction in oil production.
“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, to Reuters.
Although OPEC oil output dipped slightly in December, overall it is still very close to record levels, reducing any chance of seeing a rise in oil prices any time soon. On top of this, shale gas production has been stepped up in the US, with the country recently opening its first export terminal to help to drive down demand for oil.
“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”, added Hewson.
To make matters worse, China was forced to take emergency measures on Monday in order to prevent its stock market from collapsing during the first day of trading in 2016. The day ended with the country’s main index – the Shanghai Composite – down seven percent.
The Chinese government had to deploy its circuit breaker fail-safe system in an effort to stop stocks from falling any further, closing the market a full 90 minutes earlier than normal. It also ploughed more than ¥130bn ($18.3bn) in an attempt to stem the massive sell-off.
The sharp decline of the Chinese stock market is a due to fears over the country’s slowing economy. Something that, along with the growing instability of OPEC, is only going to serve to drive the price of oil down to even deeper depths.