Brent crude price below $35 for first time since 2004

The price of North Sea Brent crude oil has fallen below USD 35 for the first time in 11.5 years, as international market is reeling from oversupply and the ongoing row between Iran and Saudi Arabia.

On Wednesday, the global oil market was also affected by expectations that the US government will later report a rise in its strategic stockpiles had added to the global supply glut last week, AFP reported.

To add to the market’s woes, increased value of the US dollar dented prices, because as dollar rises in value, oil becomes more expensive for buyers using weaker currencies, thereby weighing on demand.

At 1030 GMT, Europe’s benchmark Brent North Sea crude oil for February delivery fell to USD 34.83 per barrel, which was the lowest figure recorded since July 1, 2004. The price, however, rebounded to above USD 35 per barrel in later trading.

"Oil prices have resumed their downswing," said Commerzbank analyst Carsten Fritsch, who added, "A firmer US dollar, concerns about demand and the plentiful supply are weighing heavily on prices."

Oversupply continues to weigh on market

Global oil prices have been under downward pressure since last year as the market has been plagued by a global supply glut, causing prices to fall from highs of above USD 100 a barrel in mid-2014. The oversupply has been mostly blamed on high production by member states of the Organization of the Petroleum Exporting Countries (OPEC) and the United States.

During its meeting last month, OPEC, which has 13 members including Saudi Arabia and Iran, decided not to slash its high output levels despite drastic fall in global oil prices. OPEC argued that the decision was made in a bid to maintain oil market share in the face of competition from North American shale oil output.

According to James Hughes, an analyst at trading firm, GKFX, the latest Brent price fall was triggered partly by dwindling hopes in the possibility of OPEC reaching an agreement to cut its output.

At the same time, oil prices were also pushed lower on Wednesday by new geopolitical fears after North Korea's latest nuclear test.

Pyongyang on Wednesday announced it had successfully conducted a hydrogen bomb test hours after seismologists detected an artificial earthquake close to the country's main atomic test site northeast of North Korea.

North Korea's state news agency later stressed in a statement that Pyongyang will continue to build up its nuclear program as deterrence against potential aggression from the United States.

"I think this (Brent price low) is a knock on affect from the likelihood that the geopolitical tensions between Saudi Arabia and Iran have put an end to hopes on a deal on oil production," Hughes told AFP.

He added, "If you then add this to the fact that we have had relentless bad news out of China ... then the snowball effect is in full swing. The events in North Korea have only added to further downward pressure."

Aftermath of Saudi killing of Shia cleric

OPEC has been also following a tougher since Saudi Arabia executed prominent Shia cleric, Sheikh Nimr al-Nimr, last weekend, which triggered tensions in Riyadh’s relations with Tehran.

"What's happening at the moment between Iran and Saudi Arabia makes searching for a compromise even more difficult," said Francis Perrin, president of Strategy and Energy Policy publications.

Riyadh announced execution of the Shia cleric after which Saudi Arabia declared it was cutting diplomatic ties with Iran. Following suit with Saudi Arabia, its major Persian Gulf allies, including Bahrain and the United Arab Emirates, as well as Sudan and Djibouti moved to cut or downgrade diplomatic ties with Tehran.

The developments have raised concerns about threats to Middle East oil supply.

Saudi Arabia has been widely blamed for the plummeting oil prices as Riyadh has adamantly refused to cut its crude output in a bid to drive other oil market players, including US shale producers, out of the market.

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