The furor over Saudi Arabia's execution of a Shi'ite cleric has depressed the market as it put an end to speculation that OPEC members could agree on production cuts to lift prices.

"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.

Global Brent crude benchmarks LCOc1 were at $35.75 a barrel at 0856 GMT (3.56 a.m. ET), down 67 cents or 1.9 percent from their previous settlement, their lowest since 2004.

U.S. crude futures CLc1 were down 46 cents at $35.51 per barrel after already slipping 79 cents the previous day.

Oil has slumped from above $115 in June 2014 as shale oil from the United States has flooded the market, while falling prices have prompted some producers to maximize output to prevent income falling too rapidly and keep market share.

Adding to this oversupply, Iranian oil exports are widely expected to increase in 2016 as Western sanctions against the country for its alleged nuclear weapons program are likely to be lifted.

"Shale production and increasing capacity from countries like Russia who need to protect revenue combined with expectations of further Iranian supply mean actual production as well as expectations of future production are rising," Hewson said.

Still, a senior Iranian oil official said the country could moderate oil export increases once the sanctions are lifted to avoid putting prices under further pressure.

In the United States, concerns over mounting stock levels persisted, with crude inventories likely to have risen by 439,000 barrels last week, according to a Reuters poll of eight analysts.

The U.S. Energy Information Administration (EIA) will publish its closely watched weekly data at 1530 GMT (10.30 a.m. ET).

 

(Reuters)