The prices of crude oil for the first time since 2004 dropped above 5% on Wednesday, as the collapse in relations between Saudi Arabia and Iran makes it impossible for any collaboration on the reduction of crude supply to the international market amongst leading exporters believable.

It is assumed that the fight between Saudi Arabia and Iran has put an end to hopes that the Organization of Petroleum Exporting Countries (OPEC) might reach a decision to slash production in order to raise the price of crude oil. However, expectations that the two countries will put an end to the fight and come to an agreement and manage supply was dashed as Riyadh severed diplomatic relations with Tehran last Monday.

OPEC members like United Arab Emirates and Kuwait have supported Saudi Arabia in the fight while Iraq collaborated with Iran in condemning Riyadh.

According to recent analysis of OPEC’s production, Saudi output inclined totally at the end of 2015, showing no indication of reducing supply leaving no space for Iran, who plans to double its export once sanctions are lifted. The analysis also showed that Saudi’s production for December had averaged 10.15 million bpd, which for the period of nine months was more than 10 million bpd, representing the lengthiest period of constant production.

Crude oil fell from $115 in June 2014 as light tight oil from US overwhelmed the market. The tumbling prices have driven some producers to increase production to make up for lower incomes as well as retain market share.

As at present, there is an oversupply of 1.5 million bpd in the global market as production exceeds consumption. Meanwhile, Iran is planning to add additional 1 million bpd to the international market when sanctions are lifted making it the largest supply boost of 2016, THIS DAY reports.

Anita Fatunji