Oil prices fell below $35 per barrel for the first time since 2004 today, tumbling more than 5% as the row between Saudi Arabia and Iran made any cooperation between major exporters on cutting output even more unlikely.

A sharp rise in petrol stocks in the US reinforced the picture of a market that is awash with oil and refined products.

The international furore over Saudi Arabia's execution of a Shia cleric ended speculation that OPEC members might agree to production cuts to lift prices.

"There are rising stockpiles and the tension between Iran and Saudi Arabia makes any deal on production unlikely," said Michael Hewson, chief market analyst at CMC Markets.

Evidence of slowing economic growth in China and India has meanwhile fuelled fears that even strong demand elsewhere may not be enough to mop up the excess crude that has resulted from near-record production over the last year.

Benchmark Brent futures were traded at $34.48 a barrel at shortly after 4pm Irish time, down $1.94 on the day, and at their lowest level since early July 2004.

The price is on track for its largest one-day drop in percentage terms in nearly five weeks.

US crude futures were down $1.48 at $34.49 a barrel after slipping 79 cents the previous day.

Oil has slumped from above $115 in June 2014 as shale oil from the US has flooded the market, while falling prices have prompted some producers to pump even harder to compensate for lower revenues and to keep market share.

Adding to this oversupply, Iranian oil exports are widely expected to increase in 2016 as Western sanctions against Tehran over its nuclear programme are lifted.

"Shale (oil) 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," Mr Hewson said.

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

Also feeding into the overall weak market sentiment, a survey showed that China's services sector expanded at its slowest pace in 17 months in December, following on from weak factory data on Monday, which also knocked markets globally.

The People's Bank of China set a weaker midpoint for the yuan, prompting concerns that the economy of the world's largest energy consumer could be in worse shape than believed.

Meanwhile US petrol stockpiles rose by 10.6 million barrels last week, the biggest build since 1993, according to Energy Information Administration data.

Investors shrugged off an unexpected fall in crude stocks, instead focusing on the massive oversupply of oil products, with distillates as well as petrol inventories gaining.

"As big as the crude oil drawdown was, the build in petrol was even more spectacular and crushing to the market.

Petrol was the sole source of strength within the complex, and that looks to have ended," said John Kilduff at Again Capital.