Oil prices drop towards 11-year lows on glut fears

London: Oil prices fell for a seventh straight session on Monday, coming close to their 11-year lows, on growing fears that the global oil glut would worsen in the months to come in a pricing war between key producers.

Brent crude fell by 3.4 percent below $37 a barrel for the first time since December 2008 and U.S. West Texas Intermediate (WTI), sank 2.5 percent below $35 a barrel.

Brent traded less than 50 cents above the lows last seen during the 2008 financial crisis of $36.20 a barrel. If Brent falls below that level, that will be its lowest since mid-2004, when talk of a commodity super-cycle was only beginning.

WTI`s financial crisis low was $32.40 in December 2008.

"I suspect it is going to establish some sort of floor around the 2008 lows," said Jasper Lawler, CMC market analyst. "There are lot of people out there that are still selling every small bounce, so it will take a little while for it to establish itself."

Both benchmarks have fallen every day since the Organization of the Petroleum Exporting Countries on Dec. 4 abandoned its output ceiling. In the past six sessions, they have shed more than 13 percent each.

OPEC has been pumping near record levels since last year in an attempt to drive higher-cost producers such as U.S. shale firms out of the market.

New supply is likely to hit the market early next year as OPEC member Iran ramps up production once sanctions are lifted as expected following the July agreement on its disputed nuclear programme.

"All new production will be earmarked for exports," BMI Research said in a note. "In addition to volumes released from storage, Iran will be able to increase crude oil and condensates exports by a maximum of 700,000 b/d by end-2016," it said.

Iran`s crude oil exports are set to hit a six-month high in December as buyers ramp up purchases in expectation that sanctions against the country will be lifted early next year, according to an industry source with knowledge of tanker loading schedules.

Iranian news agency Shana quoted on Monday manager director of Iran`s Central Oil Fields Company, Salbali Karimi, as saying Iran`s cost of production stood $1-$1.5 per barrel, in a clear indication its output would remain competitive under any price scenario.

Gulf producers and Russia have previously said they would not cut output even if prices fell to $20 per barrel.

On Friday, the International Energy Agency (IEA) that the global supply glut was likely to deepen next year and put more pressure on prices. But it said it didn`t believe the world would run out of storage capacity.

OPEC supply is likely to increase by 1 million bpd next year, Morgan Stanley analysts said in a research note Monday. 

"Almost the entirety of added supplies in 2016 will come from Iran, Iraq and Saudi," it said.