Oil prices fell yesterday to their lowest level in nearly a year, as a glut of production in the US has cut output by nearly 30% since January, leaving global supplies in freefall.
The drop in oil prices comes as the United States and China cut output to try to help curb global warming.
The fall in crude oil prices will likely have a big impact on the global economy, which has been battered by the crisis in Iran, the US’s top trading partner.
The decline in prices will also be a drag on global demand, with China and the US both forecast to expand their domestic demand in the coming months.
Brent crude, the world’s benchmark, fell 3.6% to $US54.88 a barrel on the New York Mercantile Exchange, with West Texas Intermediate oil up 5.2% to US$57.20 a barrel.
The price of West Texas produced by the Phillips 66 refinery in Houston fell $2.88 to $56.77 a barrel, but that was well below the level reached on Thursday.
That was the lowest price in a month, as the refinery reported record production of 7.1 million barrels per day, the largest production in a single day since March, according to Reuters data.
The Brent crude oil price has slumped below $US50 a barrel for the first time since June.
This is the first month in almost five years that the US and China have cut output and US production has dropped by nearly a third.
The US produced 9.5 million barrels a day in January, down from a peak of 20.9 million barrels in January.
The OPEC nations in the Gulf region have also been cutting output in recent weeks, as part of a deal with world powers including Russia, Iran and China to curb global greenhouse gas emissions.
It is not clear whether any of those cuts will have a lasting effect on global oil prices.
But it will affect the oil market, which will likely continue to be affected by the US shale boom.
The sharp fall in US crude prices is also expected to hurt the economies of the Gulf and the United Arab Emirates, which depend heavily on US exports.
The UAE has already cut its output by about 30% compared to the same month last year.
In addition to the UAE, the oil-producing states of Brazil, Mexico, Russia, Saudi Arabia and Venezuela have also cut production in recent months.
Brazil has said it will cut its oil production by more than 40% from current levels by 2020.
The world’s biggest oil producer Saudi Arabia is also cutting production.
Saudi Arabia’s production has already fallen by a third in the last two years, falling by 30% in the first half of the year compared to a comparable period last year, according a report from the US energy consultancy Wood Mackenzie.
The cut in production is a blow to Saudi Arabia, which is now a net exporter of crude oil to the world.