The oil price has dropped to its lowest for more than 11 years, down around 2 per cent, after conflict between Saudi Arabia and Iran stifled hopes of oil producing countries working together.
Conflicts in the Middle East have historically boosted oil prices.
The price of Brent crude rose briefly after Saudi Arabia's execution of a Shi'ite cleric sparked protests in Iran on Monday.
But the conflict has only pushed the price of Brent crude lower in the aftermath as onlookers fear the damage to relations will squash hopes of an agreement to cut production and stop prices sliding further.
“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.
Brent crude fell 2 per cent to $35.74 a barrel on Wednesday morning, its lowest since 2004.
Iran is expected to increase oil production in 2016 if Western sanctions over nuclear arms are lifted.
Saudi too is expected to continue pumping oil despite the global over supply. In its 2016 budget, the kindgom announced plans for a raft of reforms to combat a record budget deficit of $98 billion in 2015.
Domestic petrol prices have gone up 40 per cent since the start of the year, while changes to VAT and an increase in taxes on soft drinks and tobacco are also planned.
In October, the IMF said that Saudi Arabia could be bankrupt within five years if it did not look to diversify its revenue sources away from oil.
Additional reporting by Reuters
