As the Organisation of Petroleum Exporting Countries (OPEC) refuses to cut crude oil production, coupled with the shale oil boom in the United States, the glut in the oil market on Wednesday forced the price to fall below $56 per barrel.
With this development, it is feared that the price of crude oil is heading for its biggest yearly decline since 2008, due to weakening demand and the supply glut.
Since June 2014 when the price hit $115 per barrel, the global benchmark Brent crude has since fallen by 49.5 per cent as it went down by $1.91 on Wednesday to settle at $55.99.
Demand growth has slowed as US expanded output and OPEC dropped its strategy of cutting supply to keep oil around $100 a barrel.
The prices yesterday came under further pressure from a survey showing China's factory sector shrank for the first time in seven months in December - a bearish indication on the strength of oil demand in the world's second largest consumer.
Brent was down $1.91 at $55.99, after dropping as low as $55.93, its lowest since May 2009. US crude, WTI, was down $1.11 at $53.01.
The annual decline for Brent is set to be the biggest since 2008, when demand crumbled after hitting $147 in July 2008, in response to the financial crisis.
Prices at the time were eventually propped up by OPEC's last formal decision to cut production.
In contrast, OPEC at its last month meeting in Vienna, Austria, decided against a cutback to defend its market share against shale oil and other competing supply sources, despite its own forecasts of a growing surplus in 2015.
The crisis in Libya has effectively led to a drop in OPEC supply in December to a six-month low, a Reuters survey showed, although forecasts still point to a large excess supply in 2015.
Traders will focus on the latest US government report on oil inventories to see if it confirms the unexpected increase in stockpiles reported on Tuesday by industry group, the American Petroleum Institute (API).
US crude inventories rose by 760,000 barrels last week, the API said, compared with analysts' expectations for a decrease of around 100,000 barrels.
The Obama administration on Tuesday bowed to months of growing pressure on a 40-year-old ban on exports of most domestic crude, taking two steps expected to increase the flow of ultra-light oil or condensates into the global market.