Crude oil futures dived to their 12-year lows in Asian trade on Wednesday to hit US$27 a barrel, after the International Energy Agency (IEA) said global oil markets will drown in oversupply in 2016.
IEA cited an unseasonally warm weather and the oncoming crude supply from Iran as the factors driving prices down this year.
Considering a scenario whereby Iran adds 600,000 bpd to the market by mid-year and other members maintain current output, global oil supply will far exceed demand, the agency said.
The IEA hasn't changed its outlook for the growth in oil demand in 2016, which it has pegged at 1.2 million bpd. However, the agency says supply could exceed demand by 1.5 million bpd in the first half of 2016.
"While the pace of stock-building eases in the second half of the year as supply from non-OPEC producers falls, unless something changes, the oil market could drown in over-supply."
The latest whammy for the oil market came from the lifting of western sanctions against Iran, which holds the fourth largest oil reserves. Following Tehran's compliance with the terms of its July 2015 nuclear agreement with the western powers the sanctions on Iran's oil exports were lifted last week.
The IEA has said 2016 will be the third successive year when supply will exceed demand by 1 million bpd.
Tehran has said it is looking at raising output by an initial 500,000 bpd following the lifting of western sanctions.
More pummelling on way
Crude prices could be pummeled more heavily with the release of a couple of crucial stock data numbers. The American Petroleum Institute will release stock numbers on Wednesday while official data from the US Department of Energy's Energy Information Administration will be out on Thursday.
Oil's drop to its lowest since 2003 hammered Asian markets. MSCI's broadest index of Asia-Pacific equities outside Japan fell 2.8 percent to a four-year low.
"Oil prices are at a level where OPEC countries are all struggling. They are selling oil for cashflow not for profit," Jonathan Barratt, chief investment financial officer at Sydney's Ayers Alliance, told Reuters.